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Oil prices rebounded, rising over 1% on Monday after falling to a 15-month low amid turmoil in the banking sector.
The Brent The May delivery contract was last up 73 cents, or 1%%, at $73.70 a barrel, having previously hit $71.64 a barrel at 11am London time.
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Front month April WTI Nymex gained 73 cents, or 1.09%, to $67.47 a barrel.
Oil prices have been squeezed by a crisis in the western banking sector, which prompted the demise of tech-startup-focused Silicon Valley Bank and its Swiss rival’s takeover of struggling Credit Suisse UBS in a period of two weeks. Two sources within the influential OPEC+ alliance signaled to CNBC late last week that uncertainty in the banking sector was fueling fears of another financial meltdown in the wake of the 2008 crisis.
OPEC+ delegates could only speak on condition of anonymity as they are not allowed to discuss the issue publicly.
One of the sources indicated that the drop is likely temporary and not underpinned by supply-demand fundamentals around the physical commodity, but stressed the need to monitor the potential impact on central bank rate decisions and inflation. The European Central Bank pushed ahead with another 50 basis point rate hike on March 16, while the US Federal Reserve is due to make its own interest rate decision this week.
Over the past year, OPEC+ has pushed for stability in the oil price landscape to encourage long-term investment in spare capacity and avoid supply shortages. An OPEC+ technical ministerial committee is next adjourned on April 3.
In a March 15 note, UBS analysts indicated that the broader financial market turmoil is unlikely to affect crude oil production rates, but pointed out that “in times of heightened volatility, investors tend to back out of risky assets like oil and into safer ones.” Investing corners of the market.”
It added that the options market is now amplifying the fall in oil prices with delta hedging plays.
Citing “bank stress, recession fears and an exodus of investor flows,” analysts at Goldman Sachs lowered their oil price forecasts on March 18 and now expect Brent prices to trade at $94 a barrel in the coming 12 months and $97 a barrel in the second month Barrels will hit mid-2024 compared to previous forecasts of $100 a barrel for both periods.
“Our update also reflects slightly weaker fundamentals, namely higher-than-expected near-term inventories, moderately lower demand and moderately higher non-OPEC supply,” Goldman Sachs said.
Questions remain about the potential boost in demand from a reopening of China — the world’s largest importer of crude oil, whose purchases were largely curtailed by Covid-19 restrictions last year.
The Paris-based watchdog, the International Energy Agency, nonetheless said in the March edition of its monthly oil market report that it expects global oil demand growth “to accelerate sharply throughout 2023” as “air travel picks up again and pent-up oils are released.” Chinese demand is dominating the recovery.”
The supply picture remained clouded by Russia, whose oil flows have been stifled by Western sanctions imposed on its seaborne crude and oil products in December and February respectively. Moscow announced in March a unilateral cut in its crude oil production by 500,000 barrels a day, announced on February 10 by Deputy Prime Minister Alexander Novak.
It remains to be seen whether Russia’s declines will be long-term or the result of technical difficulties to maintain production rates in the field after the winter cold, an OPEC+ delegate told CNBC last week. According to the Saudi state press agency, Saudi Energy Minister Prince Abdulaziz bin Salman Novak hosted Prince Abdulaziz bin Salman Novak in Riyadh on March 16, with both countries reaffirming their commitment to OPEC+ policy to collectively withdraw 2 million barrels per day of production from markets by the end of 2023, agreed in October.