Crude oil contracts have started the new week with further declines following the banking crisis and the economic uncertainty, with the price of Brent crude falling as low as the $70/b support level, or down 2% on Monday morning, and the WTI crude sliding to the lows of $64/b for the first time since December 2021.
WTI crude oil, 2-hour chart
WTI crude oil prices hit a 15-month low of $64.30/b this morning, before rebounding higher later the day, adding losses further to last week’s 10% declines on a broader selloff on the banking crisis.
The broader risk aversion sentiment hit hard the growth-sensitive crude oil prices as investors fear that the ongoing crisis in the U.S. and European banking sector as well as further interest rate hikes will damage global economic growth and manufacturing activity and, in turn, weigh on demand for petroleum products.
Despite the takeover of the embattled rival Credit Suisse by Swiss banking giant UBS for just over $3 billion during the weekend, markets remained cautious and moved away from risk assets such as crude oil, concerning another financial collapse similar to the 2008 crisis.
Crude sellers believe that the recent banking collapses like Credit Suisse, Silicon Valley Bank, and Signature Bank are likely to rein in lending to preserve cash during these troubled times, which will limit economic activity as the year progresses, hitting fuel demand.
Furthermore, energy investors worry over the potential demand boost from a reopening of China- the world’s largest importer of crude oil, whose buying was harnessed for much of 2022 by strict pandemic-led mobility restrictions.
However, crude oil prices have found some support after the International Energy Agency said in the March issue of its monthly Oil Market Report that it expects world oil demand growth to “accelerate sharply over the course of 2023,” seeing “rebounding air traffic and the release of pent-up Chinese demand dominate the recovery.”
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