Oil prices sink as supply concerns ease

Oil prices retreated on Wednesday and WTI dropped to the $83.0 per barrel level. If WTI price declines, it may encounter support near $81.6 per barrel, while resistance may be found near $92.1 per barrel.

The crisis between Israel and Hamas has intensified, threatening to spill over to other Middle Eastern countries. Fears of a potential Iranian involvement caused oil prices to skyrocket at Monday’s opening. Supply concerns eased on Wednesday, though, as the Saudi Arabian government stated that it is working on preventing an escalation of the crisis and pledged to help stabilize the market.

OPEC raised its oil demand forecast on Monday, further boosting oil prices. The organization announced that it sees demand going higher and estimated that approximately $14 trillion may be needed to meet the projected demand. 

OPEC+ kept its output policy unchanged at its latest meeting, maintaining its recent cuts by Russia and Saudi Arabia, which have already been extended till the end of the year. 

Supply concerns have also been boosting oil prices. Russian authorities have decided to restrict diesel and gasoline exports to stabilize domestic fuel prices. Russia, however, eventually decided to relax the fuel ban, assuaging supply concerns. Russia initially lifted restrictions on certain fuel types, specifically fuel used as bunkering for some vessels and diesel with high Sulphur content. Last week Russia partially relaxed the fuel ban once again, allowing seaborne diesel exports.

Oil prices are kept in check by a strong US dollar and high-interest rates. The oil demand outlook has declined as the Fed has hinted at further tightening. The Fed decided to pause rate hikes at its September policy meeting, but that does not necessarily mean it has reached its rate ceiling. Even if the Fed has reached its interest rate ceiling, rates are likely to stay high for longer, driving oil demand outlook and oil prices down. 

Deterioration in China’s economic outlook is also 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. Bloomberg reported on Tuesday that the Chinese government is considering raising its sovereign debt by more than $130 billion to provide stimulus for its struggling economy.

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Written by:
Myrsini Giannouli

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