Oil prices sink on demand concerns

Oil prices plummeted on Thursday, with WTI price dropping below the $73.0 per barrel level. If WTI price declines, it may encounter further support near $70.0 per barrel, while resistance may be found near $80.0 per barrel.

Oil prices dropped after the Energy Information Administration released US crude oil inventories on Wednesday. US crude oil stockpiles increased by 3.6M barrels for the week to November 10, beating estimates of a 2.5M growth.

OPEC released its monthly report on Monday, stating that the oil demand outlook is not waning and providing support for oil prices. According to the report, oil market fundamentals remain robust and oil demand in the US and China has not weakened. Global economic concerns though, are dampening the oil demand outlook, putting pressure on oil prices.

OPEC+ kept its output policy unchanged at its latest meeting, maintaining its recent cuts by Russia and Saudi Arabia, which have already been extended till the end of the year. Russia and Saudi Arabia recently reaffirmed their commitment to maintain these voluntary supply cuts. Many market analysts even predict that the rate cuts will be extended into the first quarter of 2024. Bloomberg reported on Wednesday that Russia will cut its crude oil export duty by 5.7% for December, citing the Russian Finance Ministry. Oil prices, however, continued to decline, even on concerns of limited supply. 

Oil prices have been supported by geopolitical risks within the past month. The crisis between Israel and Hamas continues, propping up oil prices. Especially fears of a potential Iranian involvement are buoying oil prices. Fears that the war in Israel would disrupt oil supply are easing, however, causing oil prices to slip. The crisis seems to be contained so far and risks of the war spreading in the region abate. 

The release of the US CPI report on Tuesday caused a temporary uptick in oil prices but oil prices suffered a correction immediately after and failed to form an uptrend. 

Oil prices are kept in check by a strong US dollar and high-interest rates. Most major central banks, however, are hitting pause on rate hikes, boosting oil prices. FOMC members have voted to keep interest rates unchanged at a target range of 5.25% to 5.50%. 

The Fed’s approach remains largely data-driven and will depend on how fast inflationary pressures may ease in the next months. After US headline inflation surprised on the downside on Tuesday, market expectations of future rate hikes went down to zero. Even if the Fed has reached its interest rate ceiling though, rates are likely to stay high for longer, driving oil demand outlook and oil prices down. 

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: