Oil prices fell early on Monday but continued to rise during the day, with WTI price testing the $93.4 per barrel resistance, closing near $92.9 per barrel on Friday. If the WTI price declines, it may encounter support near $85.7 per barrel, while further resistance can be found at $97.8 per barrel.
Reports that the Chinese government would ease Covid measures have been boosting oil prices over the past week. China is the world’s largest energy importer and the possibility of lifting zero-Covid restrictions has increased oil demand expectations. However, over the weekend Chinese health officials reiterated their determination to keep Covid measures in place, for the time being, causing oil prices to plummet early on Monday. The uncertainty over oil demand from China has influenced oil prices considerably over the past few months.
The dollar’s collapse, however, has propelled oil prices higher. Oil prices continued to rise even after the US Federal Reserve raised interest rates by 75 basis points, bringing its interest rate to 4.0%. Aggressive rate hikes stifle economic activity, undercutting oil demand. The Fed’s rate hike however fell within market expectations, failing to curb the ascent of oil prices.
Weak US non-farm payroll data last week heightened the odds of cooling rate hikes in the future, boosting the oil demand outlook. In addition, US crude oil inventories dropped by 3.1M barrels last week, against a gain of 2.6M barrels the week before. The large drop in inventories far exceeded expectations of a more modest drop by 0.2M barrels, boosting oil prices.
Oil prices remain high ahead of the US midterm elections, causing a headache for the US government. US President Joe Biden warned oil companies to stop profiteering from the war between Russia and Ukraine. Major oil companies have posted record profits this year, which may induce the US government to impose a windfall tax on them.
The Biden administration has recently announced the release more of barrels from the US Strategic Petroleum Reserves, checking the ascend of oil prices. US President Joe Biden announced a plan to sell 15 million barrels from the SPR representing the latest tranche of the 180-million-barrel program.
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