Oil prices drop on economic growth concerns

Oil prices declined on Tuesday, with WTI prices dropping below $76 per barrel. If the WTI price declines, it may encounter support near $75 per barrel, while resistance may be found near $80.6 per barrel.

Oil prices were under pressure on Tuesday, as the dollar gained strength and global economic growth concerns intensified. Recession concerns still run high and aggressive rate hikes stifle economic activity, limiting the oil demand outlook. 

US inflation data last week showed that price pressures remain high and are not easing at the pace anticipated. US headline inflation in January dropped to 6.4% year-on-year versus the 6.2% expected, illustrating the danger of inflation becoming entrenched, which may force the Fed to rethink its recent dovish pivot. The Federal Reserve raised interest rates by only 25 basis points at its February meeting, bringing the benchmark interest rate to a target range of 4.50% to 4.75%. Current market odds lean towards further tightening in the upcoming Fed meetings and an increase in interest rates up to 5.25%. 

The oil demand outlook is increasing, boosting oil prices. OPEC+ upgraded its 2023 forecast based on expectations of China’s economic recovery. The organization released its updated projections for 2023, raising its demand forecast by 100,000 bpd. Most of the increased demand is expected to come from China, with an increase of 590,000bpd. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand. The Chinese government has eased some of its strident Covid regulations, abandoning its zero-Covid policy. China has re-opened its borders after almost three years, fuelling hopes of economic recovery. 

A price cap on Russian oil exports was set on February 5th. G7 leaders set the price cap of Russian oil exports at $100 per barrel on diesel and other products that trade at a premium to crude and $45 per barrel for products that trade at a discount. Meanwhile, Russia announced plans to reduce oil production next month. Russia threatened to cut oil output by 500,000 barrels per day as a retaliation for the price cap on the country's oil exports.

FOMC Meeting Minutes on Wednesday may provide additional information on the Fed’s future policy direction and are likely to affect oil prices.

TRADE WTI

The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.

Written by:
Myrsini Giannouli

Share the article: