Oil prices remain high on supply concerns

Oil prices soared last week buoyed by supply concerns, with WTI price climbing above the $86 per barrel level. On Monday, oil prices remained high and WTI was steady close to the $86 per barrel level. If WTI price declines, it may encounter support near $77.8 per barrel, while resistance may be found near $90.0 per barrel.

Supply concerns have been driving oil prices up. The OPEC+ alliance has been limiting oil production to keep oil prices up. Saudi Arabia is expected to extend the output cut of 1 million barrels per day into October, increasing supply concerns. 

Oil prices rose to their highest level in over seven months boosted by tightening supply. Reports that Russia would proceed with new supply cuts sent oil prices skyrocketing last week. Russia is expected to announce new production and output cuts in a deal with its OPEC+ partners this week. 

Deterioration in China’s economic outlook is keeping oil prices down. Uncertainty over China’s economic recovery has put a cap on oil prices. China is the world’s largest importer and a weaker Chinese oil demand outlook has put pressure on oil prices. Recent data showed that China imported less oil in July, driving the oil demand outlook down.

The Fed’s hawkish monetary policy has reduced oil demand outlook, putting pressure on oil prices. The U.S. Federal Reserve raised interest rates by 25 basis points in July to a target range of 5.25% to 5.50%, the highest level in 22 years. 

Federal Reserve Chair Jerome Powell, recently speaking at the Jackson Hole Symposium in the US, warned that the Fed is prepared to raise interest rates further to bring inflation down. Most investors are anticipating a pause in rate hikes, but the US central bank has signaled that further tightening is possible if inflation does not go down consistently. The prospect of an end to rate hikes increases the oil demand outlook, boosting oil prices.

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Written by:
Myrsini Giannouli

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