Oil prices gain strength ahead of OPEC meeting

Oil prices extended gains on Monday, with WTI price rising above the $84 per barrel level. If WTI price declines, it may encounter support near $80.7 per barrel, while resistance may be found near $85 per barrel.

OPEC+ is meeting on Wednesday and reports that the organization will maintain its existing output cuts raising supply concerns and boosting oil prices. OPEC has so far maintained voluntary production cuts of 2.2 million barrels per day, through the second quarter of 2024. Russia has announced additional cuts of 471K barrels per day as a result of lower refinery runs due to Ukrainian drone strikes. Iraq has also announced that it would reduce crude exports to 3.3 million barrels per day in the coming months to compensate for exceeding its OPEC+ quota since January.

Reports of a large build in US crude oil stockpiles put pressure on oil prices in early trading on Wednesday. Reuters reported an increase of 9.3M barrels of crude, causing oil prices to slide. US crude oil inventories released later on Wednesday, however, showed that US crude stockpiles fell short of expectations and oil prices rallied. The US Energy Information Administration reported a weekly crude stockpile build of just 3.2M barrels for the week to March 22nd.

Ukrainian attacks on Russian energy infrastructure are propping up oil prices. Supply concerns are boosting oil prices on reports of the loss of Russian refinery capacity after recent Ukrainian attacks. Persistent tensions in the Middle East also boost oil prices. Supply concerns provide support for oil prices, as the crisis in the Gaza area threatens to disrupt oil distribution. Tensions around the Red Sea area raise concerns that hostilities may spread in the Middle East, affecting oil supply and distribution. 

China’s poor economic outlook is increasing concerns about reduced oil demand, putting a lid on oil prices, however, despite increasing geopolitical risks. Weak economic growth in China raises concerns about future demand, pushing oil prices down. 

Oil prices are also kept in check by high Fed interest rates. The US Federal Reserve kept interest rates unchanged at its latest policy meeting within a target range of 5.25% to 5.50%. The Fed’s forward guidance was overall dovish, indicating that the Fed intends to proceed with cutting interest rates this year as planned, despite persistent inflationary pressures.

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Written by:
Myrsini Giannouli

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