The situation in China will be crucial for oil prices in the short term
The price of a barrel of WTI stabilized around $80 on Tuesday, after plunging to $75 on Monday for the first time since January. Oil prices were hurt on Monday by a report from the Wall Street Journal that OPEC+ was considering a production increase next month, but recouped their losses after Saudi Arabia denied the news. Saudi Energy Minister Prince Abdulaziz bin Salman has also indicated that they are ready to cut production further to balance supply and demand, if necessary.
Oil prices were also hurt by a darkening demand outlook following tougher health restrictions in China. The world’s largest importer has reinstated certain health restrictions, in particular inviting residents of Beijing’s largest district to stay at home after recording its first death from Covid in six months.
The demand outlook is also clouded by the tougher tone from some Fed members in recent days, which is fueling economic fears. Boston Fed President Susan Collins said in a Friday interview on CNBC that the Fed isn’t done raising rates and a 75 basis point hike in December is still on the table. while St. Louis Fed President James Bullard hinted at a 5-7% range for US target rates in a presentation in Louisville, Kentucky.
Despite the deterioration of the fundamentals, the outlook is uncertain in the medium/long term. The growing risk of a global recession should continue to weigh on oil prices, but the OPEC+ production freeze, the end of US strategic sales and the European embargo on Russian oil could justify a rebound.
WTI Oil Price Daily Chart (US Light Crude CFD) – Key Levels