Oil prices bounce off key resistance

Oil prices rose in early trading on Tuesday, reaching fresh yearly highs. WTI price bounced off the $93.0 per barrel resistance and dropped back to $91.0 per barrel later in the day. If WTI price declines, it may encounter support near $85.0 per barrel, while resistance may be found near $93.0 per barrel.

Supply concerns outweigh the reduced global economic outlook pushing oil prices higher. Reports that the Saudi Energy Minister will announce further production cuts this week are boosting oil prices. 

OPEC has been limiting oil production to keep oil prices up. Saudi Arabia and Russia are extending production cuts that have already been in place for some months now, through the end of the year. Saudi Arabia has been reducing its output by one million barrels a day since early summer and Russia followed shortly after with a reduction of 300,000 barrels a day. 

In addition, OPEC maintained its forecasts of oil demand growth for 2023 and 2024 at 2.4 million barrels per day and 2.2 million barrels per day respectively. The organization’s forecast of economic growth was also optimistic, anticipating global economic growth to remain unchanged at 2.7% and 2.6% for this year and the next respectively.

Deterioration in China’s economic outlook is keeping oil prices down, however. 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. China’s economy showed signs of improving this week, though, boosting oil prices.

The Fed’s hawkish monetary policy has reduced oil demand outlook, putting pressure on oil prices. The U.S. Federal Reserve raised interest rates by 25 basis points in July to a target range of 5.25% to 5.50%, the highest level in 22 years. A pause in rate hikes seems likely this week, increasing oil demand outlook, and boosting oil prices. 

A lot is riding on the Fed’s forward guidance on Wednesday, as the US central bank may not be done with rate hikes just yet. Market odds in favor of another rate hike in November are increasing. Even if the Fed has reached its interest rate ceiling, rates are likely to stay high for longer to bring inflation down. 

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Written by:
Myrsini Giannouli

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