Oil prices jump as OPEC maintains demand forecasts

Oil prices soared on Tuesday reaching new 10-month highs and WTI price touched the $89.5 per barrel level. If WTI price declines, it may encounter support near $84.0 per barrel, while resistance may be found near $90.0 per barrel.

Supply concerns have been driving oil prices up. On Tuesday, oil prices jumped to their highest level in 2023 on a tighter oil supply outlook. OPEC maintained its forecasts of oil demand growth for 2023 and 2024 at 2.4 million barrels per day and 2.2 million barrels per day respectively. The organization’s forecast of economic growth was also optimistic, anticipating global economic growth to remain unchanged at 2.7% and 2.6% for this year and the next respectively.

The OPEC+ alliance has been limiting oil production to keep oil prices up. Oil prices jumped to their highest level in ten months last week after Saudi Arabia and Russia announced new supply cuts. Saudi Arabia and Russia will extend production cuts that have already been in place for some months now, through the end of the year. Saudi Arabia has been reducing its output by one million barrels a day since early summer and Russia followed shortly after with a reduction of 300,000 barrels a day. Both countries were widely expected to extend the production cuts, but most analysts expected that this strategy would continue to be reviewed monthly and were taken by surprise by this move to extend them by three months.

Deterioration in China’s economic outlook is keeping oil prices down, however. 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. 

The Fed’s hawkish monetary policy has reduced oil demand outlook, putting pressure on oil prices. The U.S. Federal Reserve raised interest rates by 25 basis points in July to a target range of 5.25% to 5.50%, the highest level in 22 years. A pause in rate hikes seems likely this month, increasing oil demand outlook, and boosting oil prices. US inflation data this week on the 13th and the 14th may play a decisive role in future Fed rate decisions and are likely to affect oil prices.

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Written by:
Myrsini Giannouli

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