Oil prices tank as demand outlook drops

The oil demand outlook decreased on Tuesday as global recession fears were heightened. Oil prices tanked on Tuesday, weighed down by concerns over China’s economic recovery and increased Fed rate hike expectations, and WTI price dropped, touching $77 per barrel. If the WTI price declines, it may encounter support near $73 per barrel, while resistance may be found near $80.8 per barrel.

Concerns over China’s economic recovery put pressure on oil prices this week. China set its GDP growth target at approximately 5% for 2023, which was lower than last year’s target of 2022. Oil prices pulled back as China’s economic growth appears to be slow. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand. The Chinese government has eased some of its strident Covid regulations, abandoning its zero-Covid policy, fuelling hopes of economic recovery. 

In addition, recession concerns still run high, and aggressive rate hikes stifle economic activity, putting a lid on oil price gains. Fed Chair Powell testified before the Senate Banking Committee on Tuesday and his speech was more hawkish than anticipated, putting pressure on oil prices. Markets have adjusted Fed rate hike expectations from a 25-bp raise to a 50-bp increase in March after Powell’s speech. Market expectations of the Fed’s peak rate have also increased, moving to a range of 5.5%-5.75%. Powell will appear before Congress again on Wednesday to continue his address on the Fed’s Semi-annual Monetary Policy Report and his speech is likely to cause volatility in oil prices.

Oil prices are supported by concerns that Russia will cut its oil exports. G7 leaders set a price cap on Russian oil exports on February 5th and Russia has announced plans to reduce oil output by at least 500,000 barrels per day as a retaliation for the price cap on the country's oil exports. 

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Written by:
Myrsini Giannouli

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