The price of crude oil has turned lower during the last two days.
USOIL – Daily Chart
US Oil has fallen to support at $77.70, with a more significant support level below $73.50 if weakness continues.
Oil prices dropped Monday after Joe Biden said he would not seek a second term as US president. Investors also weighed the potential for global demand and rate cuts, potentially as soon as September.
The US Federal Reserve will review its monetary policy on July 30-31, when investors expect the bank to maintain rates. However, a possible cut in September is expected.
Delaying rate cuts could lead to a recession, which would be bearish for oil. Higher interest rates also boost the borrowing costs for consumers and businesses, hurting oil demand.
“If we get an indication of a soon rate cut, the Fed could be positive for risk-sensitive assets like oil,” said Giovanni Staunovo, an analyst at UBS. Analysts also weighed up the prospect of Joe Biden’s decision.
“We think the ability of the US president to influence US oil production is probably overrated,” said Suvro Sarkar, energy lead at DBS Bank, noting US output reached record highs last year despite the Biden administration’s moves.
“If anything, a Trump presidency could influence higher demand for oil in the US, given his anti-EV stance,” Sarkar added.
These issues could offset some of the support markets have gained recently from OPEC+ production cuts. Unrestricted oil production in the United States could lower oil prices, which may have the unintended impact of forcing small producers to halt production.
Elsewhere, China’s slower-than-expected economic growth of 4.7% in the second quarter raised concerns last week over the country’s demand for oil and continues to weigh on prices. The world’s largest oil buyer has struggled to find an even recovery since the pandemic lockdowns, which have capped oil prices over the last two years.
As we have seen in the past, OPEC may have to make further policy changes if oil drops below $70. The group had previously set a $80 price target for US oil.
