Oil prices tumble as Russian supply remains high

Oil prices tumbled on Monday, with WTI dropping below the $78.1 per barrel support, touching $77.5 per barrel. If the WTI price declines, it may encounter support near $72.4 per barrel, while resistance may be found near $82.3 per barrel.

Oil prices dropped on Friday and extended losses on Monday, as EU leaders failed to agree on the price cap of Russian oil exports. EU leaders were expected to review the price last week, but dissenting voices within the EU are causing delays in the procedures. Meanwhile, the Russian oil supply remains strong, suggesting that the sanctions have not made a significant dent in Russian oil sales.

Oil prices are supported, however, by optimism over China’s economic recovery. China’s economy has suffered from prolonged lockdowns and the country’s debt has ballooned over the past few years. The Chinese government eased some of its strident Covid regulations recently, abandoning its zero-Covid policy. China has re-opened its borders after almost three years, fuelling hopes of economic recovery. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand.

In addition, US inflation seems to be cooling, which may give the Federal Reserve some leeway toward scaling back its interest rate increases. The Fed may pivot towards a more dovish direction in its policy meeting this week. Aggressive rate hikes stifle economic activity fuelling recession fears. As inflation starts to cool though, central banks are starting to lower the pace of rate hikes, raising oil demand expectations.

This week is packed with news that may determine the direction of oil prices. The highly anticipated Fed meeting on February 1st is likely to affect oil prices significantly. OPEC-JMMC Meetings on February 1st are also likely to cause volatility in oil prices. The organization is likely to keep output target levels the same, but any shift in OPEC’s policy will likely cause oil price volatility.

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Written by:
Myrsini Giannouli

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