Oil prices sank on Wednesday, with WTI prices dropping below $73.7 per barrel. If the WTI price declines, it may encounter support near $72.9 per barrel, while resistance may be found near $80.6 per barrel.
Oil prices were under pressure this week, as the dollar gained strength and global economic growth concerns intensified. Recession concerns still run high and aggressive rate hikes stifle economic activity, limiting the oil demand outlook.
The minutes of the latest Fed meeting were released on Wednesday and were more hawkish than expected, driving oil prices down. The minutes confirmed that FOMC members believe that there is still more work to tackle inflation and that the Fed might raise interest rates for longer than expected. The Federal Reserve raised interest rates by only 25 basis points at its February meeting, bringing the benchmark interest rate to a target range of 4.50% to 4.75%. Current market odds lean towards further tightening in the upcoming Fed meetings and an increase in interest rates up to 5.25%.
The oil demand outlook is increasing, boosting oil prices. OPEC+ upgraded its 2023 forecast based on expectations of China’s economic recovery. The organization released its updated projections for 2023, raising its demand forecast by 100,000 bpd, with most of the increased demand coming from China. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand. The Chinese government has eased some of its strident Covid regulations, abandoning its zero-Covid policy, fuelling hopes of economic recovery.
A price cap on Russian oil exports was set on February 5th. G7 leaders set the price cap of Russian oil exports at $100 per barrel on diesel and other products that trade at a premium to crude and $45 per barrel for products that sell at a discount. Meanwhile, Russia announced plans to reduce oil production next month. Russia threatened to cut oil output by 500,000 barrels per day as a retaliation for the price cap on the country's oil exports.
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