Oil prices rallied on Thursday, with WTI testing the $106.4 per barrel resistance. If the WTI price drops, support can be found at the $94.5 per barrel level and further down at the $90 per barrel level, while further resistance can be found near $118.3 per barrel.
On Wednesday, US crude oil inventories jumped by 8.5 million barrels for the past week but failed to curtail the rise in oil prices. On Thursday, OPEC+ announced its production output for April, which showed that OPEC missed its output goal under the OPEC+ deal. Last week, OPEC+ members decided to raise their production output by 432,000 barrels per day for next month. However, the agreement has failed to materialize so far, as some of the organization’s members have been failing to meet their production quota. On Thursday, OPEC+ also cut its demand forecast for 2022, as the war in Ukraine limits oil demand.
Oil prices are especially volatile, as competing factors affect oil supply and demand. Stalling global economic growth and lockdowns in China dampen demand. China is the largest importer of crude oil and continuing Covid lockdowns have dampened oil demand, pushing prices down. The zero-Covid lockdown rules, especially in Shanghai, have fuelled concerns of a slowdown in the world’s biggest importer of crude. As Covid cases fall in China, however, fears of prolonged lockdown ease, driving oil prices back up.
The crisis between Russia and Ukraine has been intensifying concerns of disruptions in oil distribution, supporting oil prices. The US has already banned all oil and gas imports from Russia, with as many as 3 million barrels per day of Russian crude oil potentially removed from the market as a result of sanctions and of boycotting of Russian oil.
The EU has drafted a new package of Russian sanctions, including a ban on Russian oil crude imports. Even though the ban, if enforced, will likely throw the Eurozone into an energy crisis, it will likely not take effect for some time. The EU is hesitant to cut off Russian oil imports abruptly, as most EU member states are in favor of gradually weaning off Russian oil imports. EU’s Russian oil sanctions have stalled though, as some EU member states, such as Hungary and Bulgaria, oppose the ban and are threatening to veto the plan. Hungary in particular refuses to stop Russian oil flows from its pipeline, which accounts for approximately 50% of total EU inflows.
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