Oil prices volatile on unexpected crude oil inventories

Oil prices traded sideways on Wednesday, with WTI price oscillating around the $79 per barrel level. If the WTI price declines, it may encounter support near $73.8 per barrel, while resistance may be found near $83.4 per barrel.

Oil prices were volatile on Wednesday after Energy Information Administration data showed US crude inventories fell less than expected. Preliminary reports estimated that crude inventories would decline by over 2 million barrels in the week to July 21. US crude inventories, however, dropped by only 0.6 million last week.

The U.S. Federal Reserve raised interest rates by 25 basis points on Wednesday after holding its interest rate steady at its June policy meeting. Fed officials voted unanimously on Wednesday to raise the central bank’s interest rate to a target range of 5.25% to 5.50%, the highest level in 22 years. 

The Fed’s decision to resume economic tightening, however, was widely anticipated and had already been priced in by markets. Cooling US inflation rates have shifted Fed interest rates expectations towards a less hawkish direction. The prospect of a lower rate ceiling than previously anticipated increases the oil demand outlook, boosting oil prices.

Deterioration in China’s economic outlook is keeping oil prices down. Uncertainty over China’s economic recovery has put a cap on oil prices. China is the world’s largest importer and a weaker Chinese oil demand outlook has put pressure on oil prices. 

There is, however, speculation that the Chinese government may announce a massive stimulus package later this month to boost its struggling economy. Expectations of Chinese stimulus increased oil demand outlook this week, boosting oil prices. Chinese officials pledged on Monday to step up policy support for the economy, causing oil prices to spike. It has been reported, however, that China is holding off on major stimulus for now. 

Global economic concerns have also been weighing oil prices down, raising concerns about further oil production cuts. OPEC+ members have decided that the current 1 million barrels per day cut would be extended beyond July and into August. Additionally, Russia will reduce its output by 500,000 barrels per day.

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Written by:
Myrsini Giannouli

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