Oil prices edge lower as the US prepares to release strategic reserves

Oil prices edged lower on Tuesday, with WTI prices dropping to the $78.8 per barrel level. If the WTI price declines, it may encounter support near $72.4 per barrel, while resistance may be found near $82.3 per barrel.

The US Government announced on Monday the release of another 26 million barrels from its strategic stockpiles. The US strategic stockpiles are becoming depleted, threatening to drop to multi-decade lows, after the Biden administration sold a record 180 million barrels last year. This more recent release from the US reserves will help to allay supply concerns, driving fuel prices down.

US CPI data on Tuesday showed that price pressures remain high and are not easing at the anticipated pace. US headline inflation in January dropped to 6.4% year-on-year versus the 6.2% expected. January’s CPI print illustrates the danger of inflation becoming entrenched, which may force the Fed to rethink its recent dovish pivot. The Federal Reserve raised interest rates by only 25 basis points at its February meeting, bringing the benchmark interest rate to a target range of 4.50% to 4.75%. Current market odds lean towards further tightening in the upcoming Fed meetings and an increase in interest rates up to 5.25%. 

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. 

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. Meanwhile, Russia announced plans to reduce oil production next month. Russia threatened to cut oil output by 500,000 barrels per day as a retaliation for the price cap on the country's oil exports.

Oil prices are supported by optimism over China’s economic recovery. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand. 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. 

TRADE WTI

The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.

Written by:
Myrsini Giannouli

Share the article: