Oil prices edge higher on global economic recovery expectations

Oil prices edged higher on Wednesday, with WTI prices climbing above $78.5 per barrel. If the WTI price declines, it may encounter support near $72.4 per barrel, while resistance may be found near $82.3 per barrel.

Fed rhetoric this week remained hawkish, but markets detected dovish undertones, providing support for oil prices. Fed Chair Jerome Powell reiterated on Tuesday that the disinflation process has begun but emphasized that it still has a long way to go. Powell’s speech was cautious, but oil markets rallied after his speech on diminished rate hike expectations. Recession concerns still run high and aggressive rate hikes stifle economic activity, limiting the oil demand outlook. As inflation starts to cool though, central banks are starting to lower the pace of rate hikes, which may raise future oil demand expectations. On Wednesday, FOMC member Williams emphasized that a restrictive stance must be maintained for a few years, but did not commit to a specific ceiling for the Fed’s interest rates this year. 

Oil prices are also supported by optimism over China’s economic recovery. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand. Fatih Birol, chief of the International Energy Agency stated on Sunday that he expects half of global oil demand growth this year to come from China. The Chinese government has eased some of its strident Covid regulations, abandoning its zero-Covid policy. China has re-opened its borders after almost three years, fuelling hopes of economic recovery. 

Moreover, the International Monetary Fund has revised its global economic growth outlook, easing recession concerns. According to the IMF World Economic Outlook, the global economy is expected to grow by 2.9% this year, boosting oil demand expectations.

A price cap on Russian oil exports was set on February 5th. G7 leaders set the price cap of Russian oil exports at $100 per barrel on diesel and other products that trade at a premium to crude and $45 per barrel for products that trade at a discount. 

The outcome of the OPEC-JMMC Meetings last week caused oil prices to tumble. The organization kept output target levels unchanged, maintaining the production cuts agreed to in October. These included cutting back 2 million barrels a day to balance out reduced demand. 

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Written by:
Myrsini Giannouli

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