Oil prices edged higher this week, in anticipation of the outcome of the G7 meeting. WTI price climbed to $112 per barrel, boosted by expectations of new sanctions on Russian oil exports. If the WTI price retreats, support can be found further down near $98 per barrel, while resistance can be found near the $121.2 per barrel level and higher up at $130 per barrel.
Concerns that interest rate hikes could slow global economic growth, and reduce energy demand, have pushed oil prices down in the past couple of weeks. An increasing number of major Central Banks are moving towards a tighter fiscal policy to tame soaring inflation rates. Stalling economic growth, combined with fiscal tightening gives rise to fears of recession.
In its latest policy meeting, the US Federal Reserve voted to raise its benchmark interest rate by 75 points, while the BOE raised its interest rate by 25 base points. Other major banks, such as the Bank of Switzerland and the Bank of Canada, are also raising their interest rates, halting the ascend of oil prices.
The oil demand outlook has increased though, as in the summer there is increased traveling and driving, boosting oil demand. The zero-Covid lockdown in Shanghai has officially ended, increasing the demand outlook and boosting oil prices. It seems however that Covid restrictions are not over in China, creating uncertainty in oil demand. China is the largest importer of crude oil and Covid lockdowns have dampened oil demand, pushing prices down.
Geopolitical tensions also support oil prices, as tight supply raises fears of an energy crisis, especially in the EU. The latest package of EU sanctions against Russia includes a ban on Russian oil imports that will effectively reduce EU oil imports from Russia by 90% by the end of the year and end the EU’s dependency on Russian oil. Russia is retaliating, however, by limiting its natural gas exports in certain EU countries, further exasperating the EU’s energy problem. EU leaders met in Brussels on Friday to discuss the energy shortages stemming from the reduced Russian gas supplies. G7 leaders are meeting this week to discuss further sanctions on Russian oil, possibly by enforcing a price cap on Russian oil exports.
Many OPEC members continue to underperform, raising doubts on whether the organization can maintain its output goal. This week, two OPEC meetings have been scheduled and are likely to draw the attention of market participants. OPEC members will meet on the 29th and a meeting of OPEC+ will take place on the 30th. In its meeting this week, OPEC+ will likely discuss its output goals for August and the next few months. OPEC+ is expected to keep production goals for August to the same levels set in its previous meeting, in which the organization’s members had agreed to raise their output goal by approximately 648,000 barrels a day. It remains to be seen, however, whether the bans on Russian oil have allowed the organization to reach its output quotas.
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