Oil prices edge higher on tightening supply

Oil prices edged higher on Thursday, with WTI price climbing to the $80 per barrel level. If the WTI price declines, it may encounter support near $73.8 per barrel, while resistance may be found near $83.4 per barrel.

Global economic concerns have been weighing oil prices down, raising concerns about further oil production cuts. OPEC+ members have decided that the current 1 million barrels per day cut would be extended beyond July and into August. Additionally, Russia will reduce its output by 500,000 barrels per day. Supply concerns have been keeping oil prices up.

The U.S. Federal Reserve raised interest rates by 25 basis points on Wednesday after holding its interest rate steady at its June policy meeting. Fed officials voted unanimously on Wednesday to raise the central bank’s interest rate to a target range of 5.25% to 5.50%, the highest level in 22 years. 

The Fed’s decision to resume economic tightening, however, was widely anticipated and had already been priced in by markets. Oil prices continued to rise on Thursday despite the announcement of fresh rate hikes. Cooling US inflation rates have shifted Fed interest rates expectations towards a less hawkish direction. The prospect of a lower rate ceiling than previously anticipated increases the oil demand outlook, boosting oil prices.

The Energy Information Administration data showed that US crude inventories fell less than expected on Wednesday. Preliminary reports estimated that crude inventories would decline by over 2 million barrels in the week to July 21. US crude inventories, however, dropped by only 0.6 million last week.

Deterioration in China’s economic outlook is 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. 

There is, however, speculation that the Chinese government may announce a massive stimulus package later this month to boost its struggling economy. Expectations of Chinese stimulus increased oil demand outlook this week, boosting oil prices. Chinese officials pledged on Monday to step up policy support for the economy, causing oil prices to spike. It has been reported, however, that China is holding off on major stimulus for now. 

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Written by:
Myrsini Giannouli

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