Oil prices under pressure on demand concerns

Oil prices remained steady on Thursday, with WTI price testing the key $70.0 per barrel level support. If WTI price declines, it may encounter support near $66.7 per barrel, while resistance may be found near $79.6 per barrel.

The US Energy Information Administration reported on Wednesday a crude oil inventory draw of 4.6 million barrels for the week ending December 1st, against an inventory build of 1.6 million barrels for the week before.

Oil prices have been retreating, even though OPEC+ announced fresh production cuts last week. OPEC+ producers agreed to over 2 million barrels per day of voluntary cuts, extending already existing output cuts into the first quarter of 2024 and adding even more. As output cuts will be voluntary, however, it was left to each country individually to announce its production cuts. There are clear signs of dissent between OPEC+ members. Markets were left unconvinced that the organization would maintain the output cuts and oil prices are declining.

Global economic concerns are dampening the oil demand outlook, putting pressure on oil prices. China’s oil demand outlook is decreasing, as the country’s economic growth is disappointing. Moody’s Rating Agency lowered the outlook on China’s rating from stable to negative on Tuesday, citing increased economic risks and persistently lower economic growth. Chinese oil imports slowed down in November, putting pressure on oil prices. Oil imports in China fell by 9.2% year-on-year in November, reducing China’s oil demand outlook.

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. 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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