Oil prices extended losses on Wednesday, with WTI price dropping below the $76.7 per barrel level support, touching $74 per barrel. If the WTI price declines, it may encounter support near $72.5 per barrel, while resistance may be found near $83.4 per barrel.
Global economic concerns weighed down oil prices this week. The recent banking crisis has been driving oil prices down. As recession concerns mount, the potential of a banking sector meltdown has reduced the oil demand outlook. First Republic Bank announced on Tuesday that its deposits fell 40% in the first quarter of this year. This raised the alarm in the banking sector, pushing oil prices down. Fears of a banking sector meltdown are returning diminishing the oil demand outlook.
Fears of a slowdown in the U.S. economy also put pressure on oil prices. Recession concerns run high and aggressive rate hikes stifle economic activity, putting a lid on oil prices. The Federal Reserve raised interest rates by only 25 basis points at its meeting in March, bringing the benchmark interest rate to a target range of 4.75% to 5.00%. Market odds currently favor another 25-basis point rate hike at the Fed’s next meeting in May.
Hopes for China’s economic recovery provide support for oil prices. Predictions of increased air travel in China during May bolstered oil prices on Monday. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand. China's GDP data last week showed that the country’s economy grew by 4.5% in the first quarter of 2023. China’s economy seems to finally start recovering post-Covid. IMF estimates that the country’s GDP will grow 5.2% this year and 5.1% in 2024.
Oil prices surged at the beginning of the month, after OPEC+ producers decided to reduce output by 1.1 million barrels per day, to offset the drop in oil prices from the global banking crisis. The cuts will start in May and last through the end of the year.
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