Oil prices continued slipping on Monday, as recession concerns trumped oil production cuts. WTI price dropped to $85 per barrel on a reduced demand outlook. If the WTI price declines, it may encounter support near $82.1 per barrel, while resistance can be found at the $93.4 per barrel level.
Global recession fears outweigh tight supply concerns pushing oil prices down. Increasingly hawkish Fed rhetoric has promoted a risk aversion sentiment boosting the dollar and putting pressure on oil prices. Aggressive rate hikes stifle economic activity, undercutting oil demand, and pushing oil prices down. Fed rhetoric remains firmly hawkish, with FOMC policymakers Esther George and Mary Daly commenting over the weekend that the US Central Bank may need to step up its rate hikes to combat soaring inflation.
A recent flare-up of Covid cases in China has forced the local authorities to ramp up anti-Covid measures, putting pressure on oil prices. China’s 20th Party Congress decided over the weekend to continue with its zero-Covid policy, stifling oil demand. China is the world’s largest energy importer and concerns of renewed lockdowns are reducing demand, putting pressure on oil prices.
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. OPEC+ members strive to reclaim the $100 per barrel key level despite mounting global recession risks. The US and the EU have been striving to convince the Saudis to increase oil output and provide some relief to the energy crisis and also to deprive Russia of its huge earnings from oil exports. OPEC however seems to have turned its back on the West. US President Joe Biden hasn’t ruled out drawing down from the strategic petroleum reserves in an attempt to tame rising oil prices.
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