Oil prices crash as geopolitical tensions ease

Oil prices crashed on Monday’s opening, with WTI price dropping from $87 to $85 per barrel. If WTI price declines, it may encounter support near $82.8 per barrel, while resistance may be found near $87.8 per barrel.

Geopolitical tensions are boosting oil prices. Supply concerns provide support for oil prices, as the crisis in the Middle East threatens to disrupt oil distribution. Tensions around the Red Sea area raise concerns that hostilities may spread further in the Middle East, affecting oil supply and distribution. Over the weekend, however, there were signs of de-escalation. Peace talks are underway in Egypt and Israel removed troops from Southern Gaza.

Ongoing Ukrainian attacks on Russian energy infrastructure are also propping up oil prices. Ukrainian drones have recently attacked one of Russia’s largest oil refineries. Supply concerns are boosting oil prices on reports of the loss of Russian refinery capacity after the Ukrainian attacks. 

Supply concerns are pushing oil prices upwards. OPEC+ kept existing output cuts in place at its latest meeting, boosting oil prices. OPEC kept its output policy steady in April, maintaining its voluntary production cuts of 2.2 million barrels per day. In addition, Russia may be forced to reduce its oil output even further, as a result of lower refinery runs due to Ukrainian drone strikes. Iraq will continue to reduce its crude exports by another 130K barrels per day to compensate for exceeding its OPEC+ quota in January. 

China’s poor economic outlook is increasing concerns about reduced oil demand, putting a lid on oil prices, however, despite increasing geopolitical risks. Weak economic growth in China raises concerns about future demand, pushing oil prices down. 

Oil prices are also kept in check by high Fed interest rates. The US Federal Reserve kept interest rates unchanged at its latest policy meeting within a target range of 5.25% to 5.50%. The Fed’s forward guidance was overall dovish, indicating that the Fed intends to proceed with cutting interest rates this year as planned, despite persistent inflationary pressures. 

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Written by:
Myrsini Giannouli

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