Oil price rally halted on interest rate concerns

Oil prices surged in early trading on Thursday and WTI price bounced off from the $95.0 per barrel resistance representing a 14-month high. Oil prices suffered a correction later in the day, with the WTI price dropping to $92.0 per barrel If the WTI price declines, it may encounter support near $88.8 per barrel, while resistance may be found near $95.0 per barrel.

Oil prices were buoyed this week by fears of tight oil supply. The Energy Information Administration released US crude oil inventory data on Wednesday indicating that US crude stocks are declining. The Energy Information Administration reported a crude oil inventory draw of 2.2 million barrels for the week to September 22. Concerns about tight oil supplies pushed oil prices even higher on Wednesday.

Oil prices, however, are kept in check as interest rates remain high. The oil demand outlook has declined as the Fed delivered a hawkish message last week hinting at further tightening. FOMC members unanimously voted to keep interest rates unchanged at a target range of 5.25% to 5.50%. The Fed decided to pause rate hikes but that does not necessarily mean it has reached its rate ceiling. Market odds of another rate hike within the year are increasing. Even if the Fed has reached its interest rate ceiling, rates are likely to stay high for longer to bring inflation down. 

Last week Russian authorities decided to restrict diesel and gasoline exports to stabilize domestic fuel prices. Russia, however, decided to relax the fuel ban on Monday. Russia lifted restrictions on fuel used as bunkering for some vessels and on diesel with high Sulphur content. 

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.

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Written by:
Myrsini Giannouli

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