WTI offered but resilient in the face of recession fears

• WTI is caught between supply and demand risks in higher US rates, China lockdowns and Russian embargos.
• The Federal Open Markets Committee will end a two-day meeting on Wednesday.

At $120.56, the price of West Texas Intermediate (WTI) crude oil is lower by 0.45% after sliding from a high of $121.13 to a low of $120.50. However, WTI ended Monday higher even as investors moved away from risk ahead of the highly anticipated Federal Reserve meeting. 

The Federal Open Markets Committee will end a two-day meeting on Wednesday by raising interest rates, with most observers expecting a 50-basis point hike, though a 75-basis point rise remains a possibility as May inflation rose to 8.6%, a 40-year high.

Prospects of higher US interest rates and the warnings over China's lockdowns due to higher Covid-19 infections in Beijing are speculated to keep demand for crude oil low. However, while Chinese lockdowns are weighing on energy prices, analysts at TD Securities argued that  ''there is little evidence that the global industry has made progress with respect to the structural supply challenge ahead. With energy markets increasingly discounting rising supply risks, we took profits on our tactical length in Dec23 Brent crude as prices approached our profit target, acknowledging Chinese lockdowns as a risk to the trade's performance.''

Analysts at ANZ Bank also argued that the European ban on Russian oil is expected to tighten the market further, even without a strong rebound in demand from China. The analysts acknowledged that ''inventories continue to fall in most major consuming nations, with product fuel prices subsequently rising to record highs. The lack of response from oil producers to the tightness in oil market was reflected by EIA data that showed they spent only USD244bn on exploration and development in 2021. This is 28% below the average over the five years before the pandemic.''