Oil prices rallied last week, rising above the key $100 per barrel level, and remained strong on Wednesday, with WTI trading above $108 per barrel, rising past the $106.4 per barrel resistance. If the WTI price drops, support can be found at the $94.5 per barrel level and further down at the $90 per barrel level, while resistance can be found near $118.3 per barrel.
Oil prices are especially volatile, as competing factors affect oil supply and demand. Stalling global economic growth and lockdowns in China dampen demand. Covid restrictions in China have raised fears of a large decrease in global oil demands. China is the largest importer of crude oil and the strict Covid lockdowns had been reducing global oil demand. The large economic hub in Shanghai has been in a zero-Covid lockdown for weeks now. China’s capital city of Beijing is not under zero-Covid lockdown yet, but has strict Covid restrictions in place, limiting oil demand.
The crisis between Russia and Ukraine however, has been intensifying concerns of disruptions in oil distribution, supporting oil prices. Continued Russian hostilities against Ukraine provide support for the price of oil, as western allies discuss fresh sanctions on Russia, while the Russian President, Vladimir Putin, cut off the gas supply to Poland and Bulgaria, intensifying fears of an energy crisis in Europe.
The US has already banned all oil and gas imports from Russia, with as many as 3 million barrels per day of Russian crude oil potentially removed from the market as a result of sanctions and of boycotting of Russian oil.
The EU has been hesitant to enforce an embargo on Russian oil, as many of its member states, especially Germany, depend heavily on Russian oil imports. The EU is expected to enforce fresh sanctions on Russia within the next few days and it is reported that the Eurozone will enforce a direct embargo on Russian oil imports for the first time. Reports that Germany has dropped its opposition against the embargo have been pushing up oil prices within the last few days, as such a move will create an energy shortage in Europe.
The new package of Russian sanctions is being drafted and will likely be distributed among Eurozone members on Wednesday. It is likely, however, that the new sanctions will not signal an abrupt cutting off of Russian oil, as most EU member states are in favor of gradually weaning off Russian oil imports. On Wednesday however, reports surfaced that in one month, the European Commission would ban all shipping, brokerage, insurance, and financing servers related to the import and transport of Russian oil. The reports are as yet unconfirmed by official sources but have pushed oil prices up.
On Thursday, all eyes are going to be on the next Ministerial OPEC+ meeting. Strong volatility in the price of oil is expected after the event, depending on its outcome. Increased supply concerns, combined with high demand, may encourage OPEC and its allies to increase its current output goal.
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