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Oil prices ease after last week’s rally

Home >  Daily Market Digest >  Oil prices ease after last week’s rally

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Written by:
Myrsini Giannouli

17 January 2023
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Oil prices rallied last week on an increased oil demand outlook and WTI price climbed to $80 per barrel. The rally was checked on Monday, with the WTI price dipping below $79 per barrel. If the WTI price declines, it may encounter support near $70.2 per barrel, while resistance may be found near $81.4 per barrel.

Increased optimism about China’s economic reopening has been providing support for oil prices. China opened its borders last week after almost three years, fuelling hopes that the country is gradually ending its strict Covid policy. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand. The Chinese government eased some of its strident Covid regulations recently, abandoning its zero-Covid policy. China’s economy, however, has suffered from prolonged lockdowns and the country’s debt has ballooned over the past few years. China’s weak economy is keeping a lid on oil prices. 

A soft US inflation print last week, reduced Fed rate hike expectations, boosting oil prices. US inflation seems to be cooling, which may give the Federal Reserve some leeway toward scaling back its interest rate increases. Headline inflation dropped to 6.5% year-on-year in December from 7.1% in November. 

Aggressive rate hikes stifle economic activity fuelling recession fears. Several major Central Banks, such as the US Federal Reserve, the ECB, and the BOE raised interest rates significantly over the past year, reducing the oil demand outlook. As inflation starts to cool though, central banks are starting to lower the pace of rate hikes, raising oil demand expectations.

This week, the US PPI inflation data on the 18th will provide a more complete picture of the direction of US inflation and are likely to affect oil prices.

WTI 1hr chart

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Written by:
Myrsini Giannouli

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