Oil prices retreat on declining demand

Oil plummeted on Thursday amid potentially diminished demand and WTI price dropped below $85 per barrel. If the WTI price declines, it may encounter further support near $82 per barrel, while resistance can be found near $90.5 per barrel and higher up at the $98 per barrel level. 

A US rail strike was averted after workers reached an agreement with the rail union on Thursday. Oil prices had gone up amid concerns that the strike would hinder oil distribution and the news of the agreement brought prices back down.

Oil prices are weakened by concerns of declining demand, as China steps up Covid measures. China, which is the world’s largest oil importer, has introduced new Covid lockdowns in several parts of the country. 

Supply concerns prop up oil prices, as prospects of reviving the 2015 Iran nuclear deal have decreased considerably. New hurdles in the negotiations have raised doubts on whether Iran is committed to the deal. If the deal goes through, it can add more than a million barrels of oil per day to the global market providing some relief to oil demand.

OPEC+ members agreed last week to cut down production by 100,000 barrels per day to offset the potential return of Iranian barrels to oil markets. The organization has seen oil pricing slipping over the past month and has decided to curtail oil production to keep oil prices high. OPEC+ members strive to defend the $100 per barrel key level, despite mounting global recession risks. 

Rising odds of aggressive rate hikes push oil prices down though. Severe rate hikes stifle economic activity fuelling recession fears. Last week, the ECB performed its largest rate hike ever, increasing its interest rate by 75 bps. In addition, the Fed is likely to maintain a hawkish stance to combat persistently high inflation rates. Markets are currently wavering between a 50-bp and a 75-bp Fed rate hike in September, with odds favoring a 75-bp rate hike. The global economic slowdown and recession concerns are decreasing the oil demand outlook, putting pressure on oil prices. 

Over the past few months, Russia’s war against Ukraine has destabilized oil markets. G7 finance ministers have agreed to impose a cap on Russian oil prices and Russian President Vladimir Putin has threatened to retaliate by halting oil and gas exports if price caps were imposed.

TRADE WTI

The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.

Written by:
Myrsini Giannouli

Share the article: