Oil prices were volatile on Thursday, rising in early trading but paring gains later in the day, with WTI price dropping to $77 per barrel. If the WTI price declines, it may encounter support near $70.2 per barrel and further down at $62.6 per barrel, while resistance may be found near $82.9 per barrel.
Oil prices are being driven by opposing market forces. On Thursday, news of a winter storm in the US reduced oil demand, as the weather could disrupt travel plans for millions of US citizens. China’s economic reopening, however, has increased the oil demand outlook, boosting oil prices. The Chinese government has eased some of its strident Covid regulations, abandoning its zero-Covid policy. The Chinese economy has suffered from prolonged lockdowns but reports that the government plans to provide support for the economy and raise hopes of economic recovery. The uncertainty over oil demand in China has influenced oil prices considerably as China is the world’s largest energy importer and zero-Covid restrictions severely limit oil demand.
Supply concerns also boost oil prices. US Crude Oil stocks dropped by 5.9M barrels on Wednesday, falling far below estimates of a 2.5M barrel gain. The surprising drawdown in US crude oil stocks drove oil prices up on Wednesday. The announcement that the U.S. plans to buy up to 3 million barrels of oil for the Strategic Petroleum Reserve also provided support for oil prices this week.
The cap of $60 per barrel set by G7 leaders on Russian oil exports is also expected to limit supply. Russian President Vladimir Putin has threatened to cut production and refuse to sell oil to any country imposing a Russian oil price cap. In addition, OPEC+ will continue oil production cuts into the next year to boost oil prices, curtailing oil supplies by 2 million barrels per day.
Global recession concerns put pressure on oil prices, however. On Thursday, upbeat US GDP data increased rate hike expectations. The US Federal Reserve, the ECB, and the BOE all raised interest rates last week, reigniting fears that the poor economic outlook and looming recession will reduce oil demand. Even though the rate hikes were already priced in by markets, hawkish ECB and Fed rhetoric, point to further interest rate increases ahead, driving oil prices down.
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