Oil prices volatile on crude oil inventory data

Oil prices were volatile on Wednesday, with WTI ranging from $77 to $75 per barrel. If the WTI price declines, it may encounter support near $72.6 per barrel, while resistance may be found near $77.3 per barrel.

The Energy Information Administration released US crude oil inventory data on Wednesday. The EIA reported an inventory dip of 0.7 million barrels, which was, however, higher than the expected drop of 2.0 million barrels.

Crude oil prices jumped last week, after unexpectedly soft US inflation data, reduced Fed rate hike expectations. Fed interest rates expectations are shifting in a less hawkish direction putting pressure on the dollar. A weaker dollar has helped to propel oil prices upwards.

The U.S. Federal Reserve kept its interest rate steady at its June policy meeting to a target range of 5.00% to 5.25%. The Fed has signaled that its tightening cycle is not over yet, however, and market odds are in favor of another rate hike in July after June’s pause. 

Even though US inflation cooled to 3% in June, dropping close to the Fed’s 2% goal, most analysts expect another 25-bp rate hike in July. There is, however, doubt on whether the Fed will continue hiking rates after July’s rate increase. The prospect of a lower rate ceiling than previously anticipated is boosting oil prices.

Deterioration in China’s economic outlook is keeping oil prices down. Uncertainty over China’s economic recovery has put a cap on oil prices. Chinese economic data missed estimates on Monday, with the GDP print disappointing expectations. China’s GDP growth slowed to 0.8% for the second quarter of the year. 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 in an attempt to boost its struggling economy. Such a stimulus would increase oil demand expectations, providing support for oil prices.

Global economic concerns have also 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.

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Written by:
Myrsini Giannouli

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