Oil prices seesaw on supply vs demand battle

Oil prices seesawed on Wednesday, with WTI price plunging to the $77.5 per barrel level. If WTI price declines, it may encounter further support near $72.4 per barrel, while resistance may be found near $80.0 per barrel.

Speculation about further OPEC supply cuts boosted oil prices on Monday. The organization was scheduled to meet again over the weekend, and it was reported that its members would decide on further production cuts to maintain oil prices above the $80 a barrel mark. On Wednesday, however, the organization announced that the meeting would be postponed till November 30, without providing a reason. Reports that the meeting was delayed due to a disagreement between OPEC members on further production cuts put pressure on oil prices on Wednesday. 

OPEC+ kept its output policy unchanged at its latest meeting, maintaining its recent cuts by Russia and Saudi Arabia, which have already been extended till the end of the year. Russia and Saudi Arabia recently reaffirmed their commitment to maintain these voluntary supply cuts. Many market analysts even predict that the rate cuts will be extended into the first quarter of 2024. Bloomberg reported on Wednesday that Russia will cut its crude oil export duty by 5.7% for December, citing the Russian Finance Ministry. Oil prices, however, continued to decline, even on concerns of limited supply. 

In addition, the Energy Information Administration reported a much higher build in US crude oil stockpiles than anticipated. US crude oil stockpiles rose by 8.7M in the week ending on November 17th against estimates of 0.9M growth. Oil prices rebounded later as the upcoming Thanksgiving holiday boosted the oil demand outlook.

Oil prices have been supported by geopolitical risks. The crisis between Israel and Hamas continues, propping up oil prices. Fears that the war in Israel would disrupt oil supply are easing, however, causing oil prices to slip. The crisis is contained so far and risks of the war spreading in the region abate. 

Global economic concerns are dampening the oil demand outlook, putting pressure on oil prices. Oil prices are also kept in check by a strong US dollar and high-interest rates. Most major central banks, however, are hitting pause on rate hikes, boosting oil prices. FOMC members have voted to keep interest rates unchanged at a target range of 5.25% to 5.50%. 

The Fed’s approach remains largely data-driven and will depend on how fast inflationary pressures may ease in the next months. After US headline inflation surprised on the downside on Tuesday, market expectations of future rate hikes went down to zero. Even if the Fed has reached its interest rate ceiling though, rates are likely to stay high for longer, driving oil demand outlook and oil prices down. 

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Written by:
Myrsini Giannouli

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