Low demand outlook weighs down oil prices

Oil prices remained low early on Thursday, with WTI price testing the $82 per barrel support. Oil prices edged higher later on Thursday however, and WTI touched $84.0 per barrel. If the WTI price declines, it may encounter further support near $66 per barrel, while resistance can be found near $98 per barrel and higher up at the $100 per barrel level. 

G7 finance ministers have agreed to impose a cap on Russian oil prices in an attempt to reduce Russia's ability to fund its war against Ukraine, which would potentially drive oil prices lower. Gazprom has shut down the Nord Stream 1 gas pipeline indefinitely, and gas prices in Europe have skyrocketed. Russian President Vladimir Putin threatened on Thursday to halt oil and gas exports if price caps are imposed on Russian oil exports. Oil prices rose immediately after Putin’s statements. 

OPEC+ members have agreed to cut down production by 100,000 barrels per day to offset the potential return of Iranian barrels to oil markets. The organization has seen oil pricing slipping over the past month and has decided to curtail oil production to keep oil prices high. OPEC+ members strive to defend the $100 per barrel key level, despite mounting global recession risks. 

Rising odds of aggressive rate hikes, however, push oil prices down. Severe rate hikes stifle economic activity fuelling recession fears. On Thursday, the ECB performed its largest rate hike ever, increasing its interest rate by 75 bps. The global economic slowdown and recession concerns are decreasing the oil demand outlook, putting pressure on oil prices. 

Oil prices are also weakened by low demand in China due to renewed Covid restrictions and by a potential deal with Iran. If the deal goes through, it can add more than a million barrels of oil per day to the global market providing some relief to oil demand.

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Written by:
Myrsini Giannouli

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