Oil prices supported by output cut concerns

Oil prices remained firm on Thursday, with WTI price oscillating around the $78.7 per barrel level. If WTI price declines, it may encounter support near $75.5 per barrel, while resistance may be found near $80.0 per barrel.

Oil prices were propelled upward this week by reports that OPEC+ is considering extending its voluntary output cuts throughout the year. OPEC+ has so far decided to keep its oil output policy unchanged, maintaining the voluntary production cuts that have already been in place. The organization is enforcing substantial production cuts to keep oil prices high. At the same time, a Reuters survey showed on Thursday that OPEC members pumped 26.4M barrels per day in February, up by 90K barrels per day from January. 

Oil prices are under pressure by a large US crude oil stock build this week. US crude oil inventories released on Wednesday showed that US crude stockpiles exceeded expectations, putting a lid on oil prices. The US Energy Information Administration reported a weekly crude stockpile build of 4.2M barrels for the week to February 23rd, against expectations of a 3.1M barrel raise and following a build of 3.5M barrels the week before.

Raging tensions in the Middle East boost oil prices. Supply concerns provide support for oil prices, as the crisis in the Gaza area threatens to disrupt oil distribution. Tensions around the Red Sea area have been rising, raising concerns that hostilities may spread in the Middle East, affecting oil supply and distribution. Iran-backed Houthi militants are attacking commercial vessels in the Red Sea, raising concerns about oil supply. 

The reduced global oil demand outlook is putting pressure on oil prices. Several major economies, such as the British and the Japanese, have slipped into recession, while other countries are on the brink of recession. 

China’s poor economic outlook is increasing concerns of reduced oil demand, putting a lid on oil prices, despite increasing geopolitical risks. Weak economic growth in China raises concerns about future demand, pushing oil prices down. 

Oil prices are also kept in check by a strong US dollar and high-interest rates. The Fed kept interest rates unchanged at its latest policy meeting in January, within a target range of 5.25% to 5.50. 

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Written by:
Myrsini Giannouli

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