Oil prices vulnerable even on supply cuts

Oil prices continued to decline on Monday, with WTI price dropping to the $81.1 per barrel level. If WTI price declines, it may encounter support near $77.6 per barrel, while resistance may be found near $86.7 per barrel.

OPEC+ kept its output policy unchanged at its latest meeting, maintaining its recent cuts by Russia and Saudi Arabia, which have already been extended till the end of the year. On Sunday, Russia and Saudi Arabia reaffirmed their commitment to maintain these voluntary supply cuts. Many market analysts even predict that the rate cuts will be extended into the first quarter of 2024. Oil prices, however, continued to decline, even on concerns of limited supply. 

Oil prices are kept in check by a strong US dollar and high-interest rates. Most major central banks, however, are hitting pause on rate hikes, boosting oil prices. The BOE voted to keep interest rates unchanged on Thursday.  Last week, FOMC members voted to keep interest rates unchanged at a target range of 5.25% to 5.50%. 

Fed Chair Jerome Powell’s speech after the conclusion of the meeting had hawkish undertones. The Fed’s approach remains largely data-driven and will depend on how fast inflationary pressures may ease in the next months. Even if the Fed has reached its interest rate ceiling though, rates are likely to stay high for longer, driving oil demand outlook and oil prices down. 

Oil prices have been supported by geopolitical risks in the past few weeks. The crisis between Israel and Hamas continues, propping up oil prices. Especially fears of a potential Iranian involvement are buoying oil prices. Last week, however, fears that the war in Israel would disrupt oil supply eased, and oil prices slipped. The crisis seems to be contained so far and risks of the war spreading in the region abate. 

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Written by:
Myrsini Giannouli

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