Oil prices drop on China demand concerns

Oil prices dipped on Monday, with WTI price dropping to the $81.8 per barrel level. If oil prices retreat, they may encounter support near $80.8 per barrel, while resistance may be found near $84.6 per barrel.

Concerns about decreasing oil demand in China, the world’s largest importer, put pressure on oil prices on Monday. Oil demand outlook in China is decreasing, after the release of disappointing Chinese economic data, including low GDP growth and declining refinery output.

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. 

Renewed rate cut expectations propped up oil prices this week. Fed Chair Jerome Powell stated that significant progress has been made on disinflation, hinting at a rate cut in September. Rate cut expectations in September were catapulted above 90% after the release of the US inflation report last week, boosting oil prices.

Oil prices are supported by the seasonal oil demand outlook. Increased oil demand outlook in the summer months is propping up oil prices. Market estimates that oil demand will peak in July are boosting oil prices. 

Supply concerns provide support for oil prices on global geopolitical risks. 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. 

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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