Oil prices sink on reduced Chinese demand

Oil prices plummeted on Monday, with WTI prices dropping near $86 per barrel. If the WTI price declines, it may encounter support near $82.1 per barrel, while resistance can be found at the $90.3 per barrel level. 

Expectations of reduced demand have brought oil prices down on Monday. The dollar’s rally also contributed to the decline in oil prices.

Lower-than-expected factory activity data in China renewed fears of declining oil demand on Monday. China is the world’s largest energy importer and concerns about renewed lockdowns are stifling oil demand. China’s zero-Covid policy has isolated the country and has dealt a heavy blow to its economy. In addition, lower-than-expected data for Chinese oil demand last week has put pressure on oil prices. Although demand increased in September compared to August, Chinese crude oil import data is approximately 2% lower than last year. 

The Biden administration has recently announced the release more of barrels from the US Strategic Petroleum Reserves, checking the ascend of oil prices. Oil prices remain high ahead of the US midterm elections, causing a headache for the US government. US President Joe Biden announced a plan to sell 15 million barrels from the SPR representing the latest tranche of the 180-million-barrel program. 

Aggressive rate hikes stifle economic activity, undercutting oil demand. The next Fed monetary policy meeting is on Wednesday, November 2nd and its outcome is expected to affect oil prices. The US Central Bank has so far increased interest rates by a total of 300 basis points this year, bringing its benchmark interest rate to 3.25%. Another rate hike of at least 75 bps is expected at Wednesday’s meeting and has already been largely priced in by markets.

OPEC+ recently decided on a massive output cut of 2 million BPD starting in November. OPEC performed the largest reduction since 2020 in a bid to raise prices, led by Saudi Arabia and Russia. OPEC+ members strive to reclaim the $100 per barrel key level despite mounting global recession risks.

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Written by:
Myrsini Giannouli

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