Oil prices were volatile on Tuesday, with WTI trading at a three-month high, above $123 per barrel early in the day, but pairing its gains and dropping below $118 per barrel later on. If the WTI price retreats, support can be near $117 per barrel, while resistance can be found near the $121.2 per barrel level and higher up at $130 per barrel.
OPEC+ agreed in their latest meeting to raise their output goal by almost 648,000 barrels a day in July and August. Market investors doubt whether the organization can meet its production targets though and deliver its promised output.
On Tuesday, reports that OPEC production fell by 176,000 bpd in May compared to April, boosted oil prices. Some of the group’s members are struggling to maintain their production quota, with supply worries further increasing oil prices. Later in the day, however, the American Petroleum Institute reported a build this week of 736,000 barrels in crude oil inventories, through the release of 7.7 million barrels from the US Strategic Petroleum Reserves. Expectations that the US Federal Reserve would proceed with a higher-than-expected rate hike on Wednesday, drove oil prices down.
The oil demand outlook has increased, as the beginning of the summer marks the start of the travel season, with increased traveling and driving, boosting oil demand. Last week, renewed Covid restrictions in Shanghai put a lid on the ascend of oil prices, although the Chinese economy is showing signs of recovery. The zero-Covid lockdown in Shanghai has officially ended, increasing the demand outlook and boosting oil prices. It seems however that Covid restrictions are not over in China, creating uncertainty in oil demand. China is the largest importer of crude oil and Covid lockdowns have dampened oil demand, pushing prices down.
Rising geopolitical tensions also support oil prices, as tight supply raises fears of an energy crisis, especially in the EU, as the latest package of EU sanctions against Russia includes a ban on Russian oil imports. This plan 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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