Oil rally halted on reduced demand outlook

Oil prices gained strength in the past couple of weeks, but their rally was halted on Tuesday and WTI price dropped to the $77 per barrel level. If WTI price declines, it may encounter support near $75.5 per barrel, while resistance may be found near $79.0 per barrel.

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. 

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. 

Oil prices have been rising on reports of ongoing military involvement of the US in the Middle East. Over the weekend, an Israeli war cabinet member warned that unless Hamas freed all hostages held in Gaza by the start of Ramadan on March 10th, Israel would invade Gaza's city of Rafah.

OPEC+ has 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. The production cuts are limiting oil supply effectively, as OPEC oil output in January dropped by 410K barrels per day compared to December’s output. 

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Written by:
Myrsini Giannouli

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