Oil headed for the biggest weekly decline this year after investor confidence plunged following the worst banking sector turmoil since the financial crisis.
Futures in New York were down about 10 per cent this week, even though they edged higher on Friday to pare some of the decline. The failure of Silicon Valley Bank and troubles at Credit Suisse Group AG, compounded by oil options covering, triggered a three-day rout earlier this week that sent prices to the lowest in 15 months.
Some stability has returned to markets after banks including Credit Suisse and First Republic Bank received lifelines, with European equities higher and US index futures steady on Friday. The oil market also drew solace from Saudi Arabia and Russia’s OPEC+ chiefs meeting to discuss efforts by the group to “promote market balance and stability.”
“The three-day rout was triggered by the banking turmoil driving technical selling and forcing longs to reduce,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. “Sentiment improved after Russia’s Deputy Prime Minister Alexander Novak met with Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman to discuss oil markets.”
OPEC+ will likely sit tight and monitor the market unless Brent drops below $70 a barrel for a sustained period, according to industry consultant FGE, while Energy Aspects Ltd. said the producer group will probably wait for financial markets to calm before deciding whether to react. OPEC+’s monitoring committee, which can recommend a change in production, is scheduled to meet on April 3.
- WTI for April delivery rose 0.7 per cent to $68.83 a barrel at 9:22 a.m. in London.
- Brent for May gained 0.6 per cent to $75.12.
Until this week, the oil market had been fluctuating in a relatively narrow range as traders tried to balance the outlook for a rebound in Chinese demand and fears of a global recession. While some bulls are still holding out for a rally later this year — with Energy Aspects sticking to its call for $115 Brent — the European Central Bank’s interest rate hike on Thursday renewed concerns over the economy. All eyes will be on the US Federal Reserve’s move next week.
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