WTI oil: China will be decisive in the near term

The situation in China will be decisive for oil prices in the short term

The price of a barrel of WTI stabilized around $80 on Tuesday, after falling to $75 on Monday for the first time since January. Oil prices were hit on Monday by a report from the Wall Street Journal that OPEC+ was considering a production increase next month, but recovered their losses after Saudi Arabia denied the news. Saudi Energy Minister Prince Abdulaziz bin Salman has also indicated that they are ready to further cut production to balance supply and demand if necessary.

Oil prices were also hit by a darkening demand outlook following tightened health restrictions in China. The world’s biggest importer has reimposed some health restrictions, notably inviting residents of Beijing’s biggest district to stay at home after recording its first death from Covid in six months.

The demand outlook is also clouded by the more hawkish tone of some Fed members in recent days, fueling economic fears. Boston Fed President Susan Collins said in a Friday interview on CNBC that the Fed is not done raising interest rates and a 75 basis point increase 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 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 recovery.

WTI Oil Price (US Light Crude CFD) Daily Chart – Key Levels


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