Oil prices settle lower ahead of OPEC meeting

Oil prices slipped on Monday and WTI price dropped below the $70 per barrel level. If the WTI price declines, it may encounter support near $67 per barrel, while resistance may be found near $72.5 per barrel.

Global economic concerns have been weighing oil prices down, raising concerns about further oil production cuts. OPEC+ members have opted to keep production cuts unchanged for the remainder of 2023. Saudi Arabia, on the other hand, will cut production by an additional one million barrels per day, starting in July for a month that can be extended. This will reduce Saudi Arabian production to 9 million barrels per day. The OPEC+ meeting this week on the 5th is expected to attract the attention of market participants and may cause volatility in oil prices.

Further rate hike expectations also put pressure on oil prices. The U.S. Federal Reserve kept its interest rate steady at its June policy meeting for the first time in over a year. Fed officials have voted to keep the central bank’s interest rate at a target range of 5.00% to 5.25%. The Fed has signaled, however, that its tightening cycle is not over yet and that its peak rate might be higher than anticipated. 

Fed Chair Jerome Powell reinforced this notion, stressing that US inflation is still at twice the Fed’s 2% target, and warned that the process of getting inflation back to target still has a long way to go. Powell hinted that consecutive rate hikes may be resumed if required, stating that the majority of FOMC members are in favor of two more rate hikes this year. Expectations of additional monetary tightening reduce oil demand expectations, putting pressure on oil prices.

Deterioration in China’s economic outlook is also pushing oil prices down. Uncertainty over China’s economic recovery has put a cap on oil prices. China is the world’s largest importer and the weaker Chinese oil demand outlook has put pressure on oil prices.

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Written by:
Myrsini Giannouli

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