It is possible that the worst of the banking crisis has passed, allowing oil prices to recover somewhat after hitting a 15-month low last week.
West Texas Intermediate (WTI) crude oil prices rose by 1.4% to settle at $67.64 per barrel on Monday. This followed a sharp drop last week, with prices falling to their lowest level since December 2021.
The price of Brent crude oil rose by 1.1% on Monday, after hitting a 15-month low earlier in the day. Brent crude fell by 13% last week.
Oil prices fell sharply last week as investors worried that a banking crisis in the United States could spread to Europe and hurt the economy, reducing demand for oil. Concerns about slowing demand have kept oil prices low all year.
Fears about the liquidity crisis facing banks eased somewhat on Monday, as Swiss investment bank UBS said it would buy beleaguered peer Credit Suisse and JPMorgan appeared to make progress in the rescue of First Republic Bank. This followed last week’s federal takeover of regional banks Silicon Valley and Signature.
ING said in a note that concerns about an economic slowdown and expectation of a Federal Reserve rate hike this week will keep markets volatile.
“At this point, we just have no idea which bank in the US or Europe will run into trouble next,” said John Kilduff, a partner at New York-based energy hedge fund Again Capital. “What we have now is a storm that is less intense, so the unworked long positions have been broken, but how long this rally will last, no one knows.”
Sunil Kumar Dixit, chief technical strategist at SKCharting.com, said that crude prices, though currently in a bear market, are showing sporadic signs of life. He added that concerns about the Fed’s rates outlook on Wednesday may provide some support for prices.
“As $64.30 is acting as support for WTI, the price behavior will be watched when further recovery comes towards $68.50,” Dixit said.
It is essential for sustainability above $68.50 in order to see further upside movement towards the 10-Day Exponential Moving Average marker, which is currently positioned at $70.50.
The Federal Reserve is widely expected to raise interest rates at its meeting on March 22 by 0.25 percentage points, which would bring the U.S. interest rate to 5%. This would be in line with the Fed’s stated goal of catching up with inflation, which grew at an annual rate of 6% in February. The Fed has said that it will rely primarily on interest rate hikes to reach its long-term inflation target of 2% per year. This would be the fourth interest rate hike in the past year, totaling 1.5 percentage points.
The banking crisis is having a negative effect on the Federal Reserve’s plans, as many on Wall Street are blaming the central bank’s rate increases for the problems that have befallen some of the banks that failed. There is pressure now on the Fed not to do anymore rate increases. The central bank has not signaled that it will change its policy in response to such demands.