Oil sinks on weak demand outlook

Oil prices sank on Tuesday, with WTI price dropping below the $77.6 per barrel level support for the first time since July. If WTI price declines, it may encounter further support near $75.0 per barrel, while resistance may be found near $86.7 per barrel.

A weak global economic outlook is driving down the oil demand outlook, putting pressure on oil prices. On Tuesday, mixed economic data from China raised concerns about future oil demand. On one hand, China’s crude oil imports rose in October. On the other hand, China’s overall exports fell more than expected, indicating slowing global 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. On Sunday, Russia and Saudi Arabia reaffirmed their commitment to maintain these voluntary supply cuts. Many market analysts even predict that the rate cuts will be extended into the first quarter of 2024. Oil prices, however, continued to decline, even on concerns of limited supply. 

Oil prices have been supported by geopolitical risks within the past month. The crisis between Israel and Hamas continues, propping up oil prices. Especially fears of a potential Iranian involvement are buoying oil prices. Fears that the war in Israel would disrupt oil supply are easing, however, causing oil prices to slip. The crisis seems to be contained so far and risks of the war spreading in the region abate. 

Oil prices are kept in check by a strong US dollar and high-interest rates. Most major central banks, however, are hitting pause on rate hikes, boosting oil prices. The BOE voted to keep interest rates unchanged on Thursday.  Last week, FOMC members voted to keep interest rates unchanged at a target range of 5.25% to 5.50%. 

Fed Chair Jerome Powell’s speech after the conclusion of the meeting had hawkish undertones. The Fed’s approach remains largely data-driven and will depend on how fast inflationary pressures may ease in the next months. Even if the Fed has reached its interest rate ceiling though, rates are likely to stay high for longer, driving oil demand outlook and oil prices down. 

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Written by:
Myrsini Giannouli

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