Oil prices rise on supply concerns

Oil prices edged higher on Thursday, with WTI price rising to the $81.7 per barrel level. If oil prices drop, they may encounter support near $77.3 per barrel, while resistance may be found near $84.8 per barrel.

US crude oil inventories released on Thursday showed a large draw in US crude stockpiles, boosting oil prices. The US Energy Information Administration reported that weekly crude stocks fell by 2.5M barrels for the week to June 14th, against expectations of a drop by 2.8M barrels and a rise by 3.7M barrels the week before.

Supply concerns provide support for oil prices, as global geopolitical risks mount. Increased geopolitical tensions boosted oil prices this week as a fire broke out at a Russian oil facility after a Ukrainian drone strike. In addition, the ongoing 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. Israel threatens to declare an all-out war with Hezbollah, which will destabilize the region further.

Oil prices continued to gain strength this week on the seasonal oil demand outlook. Increased oil demand outlook in the summer months is propping up oil prices. Positive economic activity data from China boosted the oil demand outlook on Monday driving oil prices up. 

Oil prices are kept in check by high central banks’ interest rates. As expected, the US Federal Reserve kept interest rates unchanged at its policy meeting on Wednesday, 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 Fed rate cuts have become 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. Odds of a Fed rate cut in September dropped from 70% to 60% this week boosting oil prices.

OPEC+ has decided to extend most of its voluntary production cuts into 2025 to boost oil prices. OPEC, however, announced that it would gradually phase out oil production cuts and laid out plans for restoring production levels within 2025.

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Written by:
Myrsini Giannouli

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