Oil retreat halted as OPEC+ confirms production cuts

The descent of oil prices was halted on Tuesday, on reports that OPEC+ would continue with their oil production cuts. Oil prices edged higher on Tuesday, with WTI price climbing $82.5 per barrel. If the WTI price declines, it may encounter support near $76.5 per barrel, while resistance can be found at $90.3 per barrel and further up at $93.4 per barrel. 

Unsubstantiated rumors that OPEC planned an oil hike, caused oil prices to plummet early on Monday. OPEC+ members were reportedly considering an increase of up to half a million barrels a day for January. Saudi Arabian officials denied the news, however, causing oil prices to recover quickly. On Tuesday, other OPEC producers, such as the United Arab Emirates and Kuwait, re-affirmed the organization’s commitment to oil production cuts. OPEC+ members hinted that the organization will likely maintain production cuts through 2023, boosting oil prices.

This week reports that China has increased Covid measures, fuelled global recession concerns pushing oil prices down. Chinese authorities had to lock down Guangzhou’s largest center, while schools in Beijing closed. The country continues to grapple with rising Covid cases, with heavy restrictions impacting economic output. Beijing and other major Chinese cities have reported record coronavirus cases, dashing expectations of ending lockdowns. Health authorities in China seem committed to keeping strict lockdowns and quarantines in place for the time being. The uncertainty over oil demand in China has influenced oil prices considerably as China is the world’s largest energy importer and zero-Covid restrictions severely limit oil demand. 

Concerns of political uncertainty in the US have caused market turmoil, putting pressure on oil prices. Concerns that political instability may tip the country into recession, reducing oil demand, have sent oil prices plummeting. The results of the elections were close, with the votes being tallied for a week. Republicans eventually wrested control of the House from the Democrats, winning the elections with a narrow majority. 

October’s US inflation print came below expectations, bringing the dollar down last week. Cooling US inflation has reduced Fed rate hike odds, diminishing global recession concerns. Market expectations of future rate hikes were considerably trimmed after the CPI inflation report the week before and were further diminished after Tuesday’s PPI inflation print. Aggressive rate hikes stifle economic activity, undercutting oil demand and putting pressure on oil prices. 

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Written by:
Myrsini Giannouli

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