Oil prices drop after Fed rate decision

Oil prices dipped on Wednesday, with WTI price dropping to the $82.0 per barrel level. If WTI price declines, it may encounter support near $76.0 per barrel, while resistance may be found near $84.0 per barrel.

Oil prices are kept in check by high Fed interest rates. The US Federal Reserve kept interest rates unchanged at its policy meeting on Wednesday, within a target range of 5.25% to 5.50%, as expected. 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. Oil prices dropped after the Fed meeting, however, as high-interest rates reduced the oil demand outlook.

Ukrainian attacks on Russian energy infrastructure are propping up oil prices. A report by Reuters on Monday revealed that Ukrainian attacks have idled around 7% of Russia’s refining capacity in the first quarter of the year. On Tuesday, Reuters reported that Russia’s energy ministry has vowed to defend its oil and gas infrastructure against Ukrainian strikes.

Persistent tensions in the Middle East also boost oil prices. Supply concerns provide support for oil prices, as the crisis in the Gaza area threatens to disrupt oil distribution. Tensions around the Red Sea area raise concerns that hostilities may spread in the Middle East, affecting oil supply and distribution. 

OPEC+ has kept its oil output policy unchanged, maintaining the voluntary production cuts that have already been in place through the second quarter of 2024. Russia announced additional cuts of 471K barrels per day as a result of lower refinery runs due to Ukrainian drone strikes. Iraq announced on Monday that it would reduce crude exports to 3.3 million barrels per day in the coming months to compensate for exceeding its OPEC+ quota since 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. 

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Written by:
Myrsini Giannouli

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