Oil prices show signs of recovery after banking crisis subsides and commodity investors reassured
Oil prices suffered their biggest weekly falls since December as a banking crisis rocked global financial markets and spooked commodity investors.
Both major oil contracts hit their lowest levels in more than a year earlier this week and are now set to post their biggest weekly falls since December – of around ten per cent.
Brent Crude plummeted from $83.06 per barrel on Monday to $72.15 per barrel on Thursday before recovering later in the week, while WTI Crude nosedived from $77.01 per barrel to $66.03 per barrel over the same period subsequently regaining some ground.
The collapse of Silicon Valley Bank and Signature Bank alongside trouble at Credit Suisse and First Republic Bank, has triggered uncertainty over oil demand in the face of threats to economic stability.
The US and Swiss governments have scrambled to provide support and a meeting between major oil producers Saudi Arabia and Russia has helped firm up prices later in the week.
Oil prices are now 0.17 and 0.53 per cent on the Brent Crude and WTI Crude benchmarks respectively, trading at $74.83 per barrel and $68.71 per barrel.
The risk of contagion risks among banks is preventing a stronger resurgence.
The possibility of a further rout is for now, seeming to curb investor appetite for assets such as commodities – amid fears of a global recession and cut oil demand.
OPEC and the International Energy Agency have both posted bullish oil updates this month, predicting robust consumption levels in China will drive oil prices later in the year, with demand potentially outstripping supply.
“China’s reopening, following the lifting of the strict zero-COVID-19 policy, will add considerable momentum to global economic growth,” OPEC said in the report.
In its review, the IEA said: “Global oil demand growth started 2023 with a whimper but is projected to end the year with a bang.”
Overall, OPEC expects Chinese oil demand to grow by 710,000 bpd in 2023, up from last month’s forecast of 590,000, although its global total projections were steady due to downward revisions in Western markets.
Meanwhile, world oil demand in 2023 will rise by 2.32 million barrels per day (bpd) – around 2.3 per cent.
The IEA is even more bullish, and predicts rebounding jet fuel use and a resurgent China will see an overall first and fourth quarter ramp-up of 3.2m barrels per day, the largest relative in-year increase since 2010.
Further declines in prices could cause OPEC+, the wider alliance including Russia which is expected to meet on April 3, to cut supplies to prevent a forecast inventory build in the second quarter.