Oil prices jumped on Monday, as OPEC+ members agreed to cut oil production, but pared their gains on Tuesday. WTI price jumped briefly above $90 per barrel on Monday, but retreated on Tuesday, falling back to $86.5 per barrel. If the WTI price declines, it may encounter support near $82 per barrel, while resistance can be found near $98 per barrel and higher up at the $100 per barrel level.
Renewed global recession fears on Tuesday reduced the oil demand outlook, trumping OPEC’s output target cut. OPEC+ has agreed to cut down production by 100,000 barrels per day to offset the potential return of Iranian barrels to oil markets. The organization has seen oil pricing slipping over the past month and has decided to curtail oil production to keep oil prices high. Despite mounting global recession risks, OPEC+ members strive to defend the $100 per barrel key level.
Low demand in China weakened oil prices due to renewed Covid restrictions and a potential deal with Iran. If the deal goes through, it can add more than a million barrels of oil per day to the global market providing some relief to oil demand.
In addition, G7 finance ministers have agreed to impose a cup on Russian oil prices to reduce Russia's ability to fund its war against Ukraine, potentially driving oil prices lower. In the meantime, however, the energy crisis in Europe boosts oil prices. Gazprom has shut down the Nord Stream 1 gas pipeline indefinitely, and gas prices in Europe have skyrocketed.
Rising odds of aggressive rate hikes also push oil prices down. Severe rate hikes stifle economic activity fuelling recession fears. The global economic slowdown and recession concerns are decreasing the oil demand outlook, putting pressure on oil prices. Last week, Fed rhetoric remained aggressively hawkish, with FOMC member Loretta Mester stating that she sees the Fed benchmark interest rate rising to 4% and no rate cuts through 2023.
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