Oil prices rise from four-month low

Oil prices dropped to a four-month low this week with WTI trading below $73.0 per barrel in early trading on Wednesday. Oil selloff was halted later on Wednesday, however, and WTI price reclaimed the $74.5 per barrel level. If WTI price declines, it may encounter support near $71.4 per barrel, while resistance may be found near $80.8 per barrel.

Oil prices are 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 US Fed is keeping interest rates at a 23-year high, restricting economic growth and limiting the oil demand outlook as a result.

Odds of rate cuts have become more moderate in recent months, putting pressure on oil prices, as policymakers have stated that they do not intend to start reducing interest rates until there is more evidence of disinflation. Rate cut expectations have been on the rise, however, since Core PCE price index data last week showed that inflationary pressures in the US are easing. Fed rate cut odds in September rose to 70% on Wednesday, boosting oil prices.

Oil prices were volatile ahead of the highly anticipated OPEC meeting on Sunday and dipped immediately after the meeting. Oil prices continued to drop this week as markets had time to ponder OPEC’s complex announcement, revealing that the organization plans to restore oil supply within the next year. OPEC+ decided to extend most of its voluntary production cuts into 2025 to boost oil prices. The organization, however, has also announced that it would gradually phase out oil production cuts and laid out plans for restoring production levels within 2025. Markets had already priced in the extension of oil production cuts and the news that OPEC eventually plans to unwind the cuts drove oil prices down.

Supply concerns provide support for oil prices, as the crisis in the Middle East threatens to disrupt oil distribution. Tensions around the Red Sea area raise concerns that hostilities may spread further in the Middle East, affecting oil supply and distribution. 

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Written by:
Myrsini Giannouli

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