Oil prices rise after optimistic IMF forecast

Oil prices rose to $78 per barrel on Tuesday. If WTI price declines, it may encounter support near $72.4 per barrel, while resistance may be found near $79.0 per barrel.

The International Monetary Fund upgraded its global economic growth outlook on Tuesday, boosting oil prices. The IMF raised its global growth forecast for 2024 to 3.1%, from 2.9% in October. The organization based its updated estimate mainly on increased economic growth in the US and China as well as on cooling inflationary pressures.

Supply concerns boost oil prices, as the crisis in the Gaza area threatens to disrupt oil distribution. Tensions around the Red Sea area have been rising, raising concerns that hostilities may spread in the Middle East, affecting oil supply and distribution. Iran-backed Houthi militants are attacking commercial vessels in the Red Sea, with Yemen Houthi rebels launching missiles at a fuel tanker on Friday. 

A deadly drone attack against US forces over the weekend intensified tensions in the Middle East, increasing concerns for the oil transportation routes in the area. President Joe Biden stated that the US will hold those responsible to account. The US has accused Iran of being behind the attack and has threatened to retaliate, although the Iranian government denies any involvement in the drone attacks. Biden said on Tuesday that he has decided on how to respond to the drone attack hinting that he holds Iran responsible for the incident.

China’s poor economic outlook is increasing concerns of reduced oil demand, putting a lid on oil prices, despite increasing geopolitical risks. Weak economic growth in China raises concerns about future demand, pushing oil prices down. Oil prices retreated on Monday as reports of a real estate crisis in China fueled demand worries.

Oil prices are kept in check by a strong US dollar and high-interest rates. This week all eyes will be on the US Federal Reserve and the monetary policy meeting on the 31st.  The Fed kept interest rates unchanged at its December meeting, within a target range of 5.25% to 5.50%. The US central bank is expected to leave interest rates unchanged again this week. Fed Chair Jerome Powell’s press conference after the meeting will attract much attention as traders will focus on the central bank’s forward guidance. 

Global Oil demand outlook has increased, as the International Energy Agency (IEA) joined the producer group OPEC in forecasting strong growth in global oil demand. The IEA monthly report stated that oil demand is expected to grow by 1.24M barrels per day in 2024, up by 180K barrels per day from its previous projection. OPEC has also reported a high oil demand forecast, expecting a growth in demand of 2.25M barrels per day this year.

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Written by:
Myrsini Giannouli

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