Oil prices rose on Tuesday, with WTI price climbing above $89.0 per barrel. If the WTI price declines, it may encounter support near $82.1 per barrel, while resistance can be found at the $90.3 per barrel level.
The softer dollar on Tuesday ahead of Wednesday’s Federal Reserve meeting boosted oil prices. One of the determining factors of oil prices in the past few months has been the uncertainty governing oil demand from China. China is the world’s largest energy importer and concerns about renewed lockdowns are stifling oil demand. China’s zero-Covid policy has isolated the country and has dealt a heavy blow to its economy. On Tuesday, reports that the Chinese city of Zhengzhou would relax some of its Covid measures, boosted oil prices. In addition, manufacturing PMI data for China released on Tuesday exceeded expectations, raising hopes for the recovery of the country’s industry.
Lower than-expected factory activity data in China renewed fears of declining oil demand on Monday however, helping check oil prices. In addition, last week, lower-than-expected data for Chinese oil demand put pressure on oil prices. Although demand increased in September compared to August, Chinese crude oil import data is approximately 2% lower than last year.
Oil prices remain high ahead of the US midterm elections, causing a headache for the US government. On Tuesday, US President Joe Biden warned oil companies to stop profiteering from the war between Russia and Ukraine. Major oil companies have posted record profits this year, which may induce the US government to impose a windfall tax on them.
The Biden administration has recently announced the release more of barrels from the US Strategic Petroleum Reserves, checking the ascend of oil prices. US President Joe Biden announced a plan to sell 15 million barrels from the SPR representing the latest tranche of the 180-million-barrel program.
Aggressive rate hikes stifle economic activity, undercutting oil demand. The next Fed monetary policy meeting is on Wednesday and its outcome is expected to affect oil prices. The US Central Bank has increased interest rates by 300 basis points this year, bringing its benchmark interest rate to 3.25%. Another rate hike of at least 75 bps is expected at Wednesday’s meeting and has already been largely priced in by markets.
OPEC+ recently decided on a massive output cut of 2 million BPD starting in November. OPEC performed the largest reduction since 2020 in a bid to raise prices, led by Saudi Arabia and Russia. Despite mounting global recession risks, OPEC+ members strive to reclaim the $100 per barrel key level.
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