Oil prices ease on US rate hike uncertainty

Oil prices edged higher in early trading on Wednesday, with WTI price testing the $81.4 per barrel resistance. However, oil prices eased later in the day, with WTI dropping to $79 per barrel. If the WTI price declines, it may encounter support near $70.2 per barrel, while resistance may be found near $81.4 per barrel.

US PPI data on Wednesday fell below expectations, reducing Fed rate hike expectations and driving oil prices up. PPI declined by 0.5% in December, versus estimates of a 0.1% drop. However, a soft inflation print was expected and had largely been priced in by markets. Headline inflation also dropped to 6.5% year-on-year in December from 7.1% in November. 

US inflation seems to be cooling, which may give the Federal Reserve some leeway toward scaling back its interest rate increases. Aggressive rate hikes stifle economic activity fuelling recession fears. As inflation starts to cool though, central banks are starting to lower the pace of rate hikes, raising oil demand expectations.

OPEC released its monthly report on Tuesday, raising optimism about the oil demand outlook. The organization left its global oil demand forecast unchanged, boosting oil prices, as markets had been expecting a drop in oil demand outlook.

Increased optimism about China’s economic reopening has also been providing support for oil prices. China opened its borders last week after almost three years, fuelling hopes that the country is gradually ending its strict Covid policy. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand. The Chinese government recently eased some of its strident Covid regulations, abandoning its zero-Covid policy. 

China’s economy has suffered from prolonged lockdowns and the country’s debt has ballooned over the past few years. China’s weak economy is keeping a lid on oil prices. On Tuesday, China released GDP data for the final quarter of 2022, which exceeded expectations, providing support for oil prices.

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Written by:
Myrsini Giannouli

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