Oil prices rally as China air travel picks up

Oil prices rallied on Monday, with WTI price climbing to the $78.8 per barrel level. If the WTI price declines, it may encounter support near $76.7 per barrel, while resistance may be found near $83.4 per barrel.

Oil prices surged at the beginning of the month, after OPEC+ producers decided to reduce output by 1.1 million barrels per day, to offset the drop in oil prices from the global banking crisis. The cuts will start in May and last through the end of the year. Oil prices suffered a correction, declining last week, weighed down by weak demand. However, oil prices started to recover on Monday on supply concerns, as OPEC’s production cuts are about to come into effect. 

Hopes for China’s economic recovery also provide support for oil prices. Predictions of increased air travel in China during May bolstered oil prices on Monday. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand. China's GDP data last week showed that the country’s economy grew by 4.5% in the first quarter of 2023. China’s economy seems to finally start recovering post-Covid. IMF estimates that the country’s GDP will grow 5.2% this year and 5.1% in 2024.

The Federal Reserve raised interest rates by only 25 basis points at its meeting in March, bringing the benchmark interest rate to a target range of 4.75% to 5.00%. Market odds currently favor another 25-basis point rate hike at the Fed’s next meeting in May. 

The recent banking crisis has been driving oil prices down in the past few weeks. As recession concerns mount, the potential of a banking sector meltdown has reduced the oil demand outlook. Fears of a slowdown in the U.S. economy also put pressure on oil prices. Recession concerns run high and aggressive rate hikes stifle economic activity, putting a lid on oil prices.

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Written by:
Myrsini Giannouli

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