Oil prices were volatile on Monday, pressured by fluctuations in supply and demand. WTI price plummeted and fell below the $103 per barrel support level early in the day, before paring some of its losses and climbing back to $104 per barrel. If the WTI price retreats, support can be found again near $103 per barrel and further down at $98 per barrel, while resistance can be found near the $115 per barrel level and higher up at $121.2 per barrel.
Heightened global recession fears have recently reduced the oil demand outlook, putting pressure on oil prices. Concerns that interest rate hikes could slow global economic growth and reduce energy demand have pushed oil prices down. An increasing number of major Central Banks are moving towards a tighter fiscal policy to tame soaring inflation rates. Stalling economic growth combined with fiscal tightening and soaring inflation gives rise to fears of recession, halting the ascend of oil prices.
Uncertainty over China’s oil demand is causing fluctuations in oil prices. China is the largest importer of crude oil and Covid lockdowns have dampened oil demand, pushing prices down. Covid restrictions are still in place in China, but not as stringent as they were in the past few months. Last week, reports that China plans to stimulate its economy via a large stimulus package boosted the oil demand outlook. On Monday however, reports of massive Covid testing in China have reignited fears of extensive lockdowns in China, pushing oil prices down.
Oil supplies remain tight, further supporting oil prices. Many OPEC members continue to underperform, raising doubts about whether the organization can maintain its output goal, and adding to supply concerns. Sanctions against Russia limit Russia’s oil output, while unrest in Libya has led protestors to block the country’s main oil export ports.
In their latest meeting, OPEC+ members discussed output goals for August but refrained from setting a goal for September’s production. OPEC+ maintained its output policy and kept its production goals for August to the same levels agreed in its previous meeting, raising its output by approximately 648,000 barrels a day.
It remains to be seen, however, whether the bans on Russian oil will allow the organization to reach its output quotas. Further sanctions on Russian oil exports have been discussed by G7 leaders, possibly by enforcing a price cap on Russian oil exports. In addition, the latest package of EU sanctions against Russia includes a ban on Russian oil imports that will effectively reduce EU oil imports from Russia by 90% by the end of the year and end the EU’s dependency on Russian oil.
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