Oil prices soar as US crude stocks decline

Oil prices surged on Wednesday and WTI price was catapulted to a 14-month high of $94.5 per barrel. If WTI price declines, it may encounter support near $88.8 per barrel, while resistance may be found near $95.0 per barrel.

Oil prices were buoyed this week by fears of tight oil supply. The Energy Information Administration released US crude oil inventory data on Wednesday indicating that US crude stocks are declining. The Energy Information Administration reported a crude oil inventory draw of 2.2 million barrels for the week to September 22. Concerns about tight oil supplies pushed oil prices even higher on Wednesday.

Last week Russian authorities decided to restrict diesel and gasoline exports to stabilize domestic fuel prices. Russia, however, decided to relax the fuel ban on Monday. Russia lifted restrictions on fuel used as bunkering for some vessels and on diesel with high Sulphur content. 

The oil demand outlook has declined as the Fed delivered a hawkish message last week hinting at further tightening. FOMC members unanimously voted to keep interest rates unchanged at a target range of 5.25% to 5.50%. The Fed decided to pause rate hikes but that does not necessarily mean it has reached its rate ceiling. The Fed policy statement following the meeting left the door open for further rate hikes. Market odds of another rate hike within the year are increasing, although it is clear that the Fed’s future policy direction will be data-driven. Even if the Fed has reached its interest rate ceiling, rates are likely to stay high for longer to bring inflation down. 

Deterioration in China’s economic outlook is keeping oil prices down, however. Uncertainty over China’s economic recovery has put a cap on oil prices. China is the world’s largest importer and a weaker Chinese oil demand outlook has put pressure on oil prices. China’s economy showed signs of improving this week, though, boosting oil prices.

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Written by:
Myrsini Giannouli

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