Oil prices closed sharply lower on Tuesday at their lowest level in four months as traders remain concerned about a possible recession after monetary tightening is creating the first turbulence in the US banking sector.
The price of a barrel of North Sea Brent for May delivery fell 4.11% to close at $77.45. A barrel of American West Texas Intermediate (WTI), due in April, fell 4.63% to $71.33.
In post-close e-trade, the market’s two benchmark varieties even continued their slide, with Brent dipping below $77 and WTI dipping below $71 for the first time since early December.
banking crisis
“This banking crisis reinforces fears of a recession,” said John Kilduff of Again Capital, referring to the bankruptcy of three US stores in a few days.
Despite a kind of stabilization on Wall Street on Tuesday and the emergency measures taken on Sunday by the US authorities to guarantee deposits, “this affects investor confidence” in the financial system and “in the economy in general.”
“And that does not bode well for oil demand,” insists the analyst.
“Apart from gold, the entire commodity sector seems to think we’re headed for a recession,” added Bill O’Grady of Confluence Investment.
“And most of the traditional indicators announce it,” insisted the analyst, mentioning in particular the evolution of bond rates, higher in the short term than in the long term for months, a phenomenon that almost systematically precedes a recession.
For Bill O’Grady, the market had so far clung to the prospect of a recovery in Chinese demand, to the point of relativizing the short-term fundamentals, namely the abundant supply and weak US or even European consumption of refined products.
centrifugal forces
This had led the courses to evolve, since the beginning of the year, within tight margins.
“It looks like we have broken out” of this range, and “when you cross a technical threshold (downside), it often triggers additional selling” and accelerates the decline, which happened late in the session on Tuesday.
RBC analyst Helima Croft raised on Tuesday the possibility of an intervention by the Organization of the Petroleum Exporting Countries (OPEC) if prices continue to fall.
According to her, the meeting of the ministerial committee (JMMC), on April 3, “offers the opportunity for a change of course.”
“Reducing production has always been a difficult exercise for them,” argues John Kilduff, who recalls that the cartel’s production increased by 150,000 barrels per day in February compared to January, contradicting the group’s commitments, according to the Reuters agency.
For the analyst, OPEC is currently animated by centrifugal forces, several members, in particular the United Arab Emirates, disagreeing with the line dictated by Saudi Arabia, which pushed the alliance to announce, in early October, a cut in its production of two million barrels per day to support prices.
The cartel updated its forecast for 2023 on Tuesday and maintained its estimate of an increase in demand of 2.3 million barrels per day. He revised up Asian demand, supported by China, but reduced that of America and Europe.
Source: BFM TV
