Oil volatile on concerns over China’s economic recovery

Oil prices were volatile on Monday, dropping in early trading and then edging higher, despite concerns over China’s economic recovery. WTI price rallied, touching $80 per barrel. If the WTI price declines, it may encounter support near $73 per barrel, while resistance may be found near $80.6 per barrel.

Concerns over China’s economic recovery put pressure on oil prices on Monday. China set its GDP growth target at approximately 5% for 2023, which was lower than last year’s target of 2022. Oil prices pulled back as China’s economic growth appears to be slow. 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, fuelling hopes of economic recovery. 

Reports of an imminent split in OPEC caused high volatility in oil prices last week. The United Arab Emirates is reportedly considering leaving the organization, after a growing rift with Saudi Arabia. 

Oil prices are supported by concerns that Russia will cut its oil exports. G7 leaders set a price cap on Russian oil exports on February 5th and Russia has announced plans to reduce oil output by at least 500,000 barrels per day as a retaliation for the price cap on the country's oil exports. 

In addition, recession concerns still run high, and aggressive rate hikes stifle economic activity, putting a lid on oil price gains. Current market odds lean towards further Fed tightening and an increase in interest rates up to 5.25%. Fed Chair Powell’s testimony before the Senate Banking Committee on the 7th and 8th is also expected to affect oil prices. 

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Written by:
Myrsini Giannouli

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