Oil prices are volatile ahead of the 4th of July holiday

Oil surged in early trading on Tuesday, but pared gains later in the day. WTI price rose to $84.5 per barrel early on Tuesday then retreated to $83.0 per barrel. If oil prices drop, they may encounter support near $80.5 per barrel, while resistance may be found near $84.7 per barrel.

Oil prices continued to gain strength early on Tuesday on the seasonal oil demand outlook. Increased oil demand outlook in the summer months is propping up oil prices especially ahead of the US 4th of July holiday. Market estimates that oil demand will peak in July are boosting oil prices. 

Supply concerns provide support for oil prices, as global geopolitical risks mount. 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. Tensions are rising on the Israel-Lebanon border as Israel threatens to declare an all-out war with Hezbollah, which will destabilize the region further.

Oil prices are kept in check by high central banks’ interest rates. The US Federal Reserve kept interest rates unchanged at its policy meeting in June, within a target range of 5.25% to 5.50%, as expected. 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 are currently around 70%, while a rate cut by November is fully priced in.

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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