Banking crisis diminishes oil demand outlook

Oil prices tumbled in early trading on Monday and WTI price dropped to near $64 per barrel but pared losses later in the day. If the WTI price declines, it may encounter support near $61.6 per barrel, while resistance may be found near $77.3 per barrel.

Oil prices dropped to their lowest level in 15 months on Monday, driven down by the global banking crisis. The potential of a banking sector meltdown has reduced the oil demand outlook, as recession concerns mount.

Fears of a slowdown in the U.S. economy also put pressure on oil prices. Recession concerns run high and aggressive rate hikes stifle economic activity, putting a lid on oil prices. The Federal Reserve is holding its highly anticipated monetary policy meeting this week on the 22nd. The Fed is meeting this week against an increasingly uncertain economic backdrop, as the global banking crisis has changed market expectations. Markets are pricing in a 25-bp hike, although there is speculation that the Fed may even pause rate hikes completely this week as concerns about a banking sector meltdown remain high.

Concerns over China’s economic recovery also reduce the oil demand outlook. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand. Hopes of economic recovery were revived after the Chinese abandoned its zero-Covid policy. China’s economy remains fragile however and may take longer than anticipated.

Oil prices are supported by concerns that Russia will cut its oil exports. G7 leaders set a price cap on Russian oil exports on February 5th and Russia has announced plans to reduce oil output by at least 500,000 barrels per day as a retaliation for the price cap on the country's oil exports. 

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Written by:
Myrsini Giannouli

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