Following a lifeline from Credit Suisse, oil wins some ground

Oil prices recovered some ground on Thursday after hitting 15-month lows the previous session as markets stabilised following Swiss regulators’ decision to provide Credit Suisse with a financial lifeline.

However, market sentiment remained shaky due to worries about increasing bank stress around the world, with both benchmarks giving up some early Thursday gains that saw Brent rise by more than $1.

At $74.29 a barrel, Brent crude futures were up 60 cents or 0.8%. WTI crude futures increased by 47 cents or 0.7% to $68.08 a barrel. U.S. crude dipped below $70 a barrel on Wednesday for the first time since December 20, 2021, marking the third straight day of drops. Since Friday’s finish, Brent has fallen around 10%, while U.S. crude has lost about 11%.

As a decline in its share price heightened concerns about a worldwide financial crisis, Credit Suisse announced on Thursday that it would borrow up to $54 billion from the Swiss central bank to support its liquidity and investor confidence.

According to analyst Lim Tai An of Phillip Nova Pte, OPEC’s more optimistic assessment of China’s oil demand helped to strengthen oil prices. On Wednesday, a monthly report from the International Energy Agency (IEA) noted an anticipated increase in oil consumption from resumed air travel and China’s economic recovery after abandoning its zero-COVID policy. OPEC boosted its 2023 China demand projection earlier this week.

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Oil oversupply worries yet persist

According to the IEA, despite sanctions on its seaborne exports, Russian oil production held close to pre-war levels in February, while commercial oil reserves in industrialised OECD nations reached an 18-month high.

Given that the eurozone economy is strengthening and inflation will stay high for years, policymakers at the European Central Bank should tilt toward raising interest rates.

If economic development slows, higher interest rates might cause a decline in oil consumption, but worries about a banking crisis could also have an impact. The upheaval in the global banking sector, which resonated throughout the financial markets and led investors to avoid exposure to risk assets, pushed down WTI crude futures, which had lost over 12% of their value in the previous three sessions, and they held below $68 per barrel on Thursday.

With the bankruptcies of Silicon Valley Bank and Signature Bank and the issues at Credit Suisse, investors are evaluating their concerns on the economic stability in the US and Europe. However, OPEC increased its prediction for Chinese oil demand growth in 2023 due to the nation’s departure from the zero-COVID policy, providing some relief to oil prices.

Source: Financial Brokerage