Oil prices were volatile on Thursday, with WTI price climbing to $78 per barrel at early trading, then paring gains and dropping back to $76.2 per barrel. If the WTI price declines, it may encounter support near $73 per barrel, while resistance may be found near $80.8 per barrel.
Recession concerns l run high and aggressive rate hikes stifle economic activity, putting a lid on oil price gains. Fed Chair Powell testified before the Senate Banking Committee on Tuesday and his speech was more hawkish than anticipated, putting pressure on oil prices. Powell’s second testimony on Wednesday was slightly less hawkish, emphasizing that, although inflation had been more resilient than anticipated, any decision to hike rates more aggressively would be data-based.
After Powell's testimonies, markets adjusted Fed rate hike expectations from a 25-bp raise to a 50-bp increase in March. Market expectations of the Fed’s peak rate have also increased, moving to a range of 5.5%-5.75%.
Concerns over China’s economic recovery also put pressure on oil prices this week. China set its GDP growth target at approximately 5% for 2023, which was lower than last year’s target of 2022. Oil prices pulled back as China’s economic growth appeared to be slow. 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.
Oil prices are supported by concerns that Russia will cut its oil exports. G7 leaders set a price cap on Russian oil exports on February 5th and Russia has announced plans to reduce oil output by at least 500,000 barrels per day as a retaliation for the price cap on the country's oil exports.
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