Oil prices dropped sharply on Tuesday, with WTI price dropping to $89.0 per barrel. If the WTI price declines, it may encounter support near $85.7 per barrel, while further resistance can be found at $90.3 per barrel and further up at $97.8 per barrel.
Concerns of political uncertainty in the US are causing market turmoil this week, putting pressure on oil prices. The US mid-term elections on Tuesday will decide which party controls Congress and the results so far appear to be close. If the Democratic party loses control of Congress, it will have a hard time passing important fiscal legislation later this year. The Biden administration is tasked with bringing inflation down and at the same time avoiding sending the country into recession. The government’s task will become much harder if it cannot promote its fiscal agenda. Concerns that political instability may tip the country into recession, reducing oil demand, have sent oil prices plummeting.
In addition, aggressive rate hikes stifle economic activity, undercutting oil demand. Last week the US Federal Reserve raised interest rates by 75 basis points, bringing its interest rate to 4.0%. As central banks turn towards a more hawkish monetary policy global recession concerns rise, putting pressure on oil prices.
Reports that the Chinese government would ease Covid measures have been boosting oil prices over the past week. China is the world’s largest energy importer and the possibility of lifting zero-Covid restrictions has increased oil demand expectations. However, over the weekend new Covid cases once more spiked in China. Chinese health officials reiterated their determination to keep Covid measures in place, for the time being, causing oil prices to plummet again this week. The uncertainty over oil demand from China has influenced oil prices considerably over the past few months.
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