Oil prices drop on OPEC’s plans to restore supply

Oil prices plummeted after the OPEC meeting on Sunday and continued to decline this week. WTI price dropped to $73.0 per barrel on Tuesday as markets had time to digest OPEC’s decision. 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 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 has been driving oil prices down.

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 are becoming more moderate, 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. 

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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