WTI could hit the $60 mark as global banking turmoil overshadows central banks' liquidity efforts

2023-03-20 17:11:24

Despite the safeguards of the major central banks, the banking crisis could spread. In the European market on Monday, the price of West Texas Intermediate (WTI) oil still fell below the $65 mark. Credit Suisse is in liquidity troubles and UBS has been urged to buy the bank.

The sharp drop in WTI indicated strong investor pessimism, as oil prices tend to be a barometer of economic growth.

Over the weekend, the Federal Reserve (FED) opened its swap lines from Monday until April. It is a conduit through which other central banks obtain short-maturity dollars in exchange for local currencies. These excess dollar reserves are then acquired by commercial banks to facilitate commercial operations.

While the Federal Reserve, the European Central Bank and other major central banks pledged to increase market liquidity and support the banking sector, they failed to turn market sentiment around. Earlier, under the impetus of regulators, UBS Group announced the acquisition of Credit Suisse (Credit Suisse), trying to ease people's concerns about the banking crisis through this "historic transaction".

Oil price action reflected concerns about global growth amid an unfavorable environment caused by banking turmoil. Crude oil prices were under pressure due to concerns that the banking crisis could spread to more areas of the economy, weakening economic activity and hitting demand for crude oil. Concerns over slowing demand have weighed heavily on the oil market this year, with prices remaining subdued. Several reports suggest that two European commercial banks are under scrutiny for possible contagion.

"Concerns about the broader market hit the oil market hard last week, while the fundamentals clearly weren't strong enough to support the market," analysts at ING said. The outcome is unclear and markets will continue to be volatile this week.

On the part of the Organization of the Petroleum Exporting Countries (OPEC), despite the efforts of the aforementioned organizations, the drop in prices has caused problems for OPEC. Earlier, some comments by Iraqi Prime Minister Mohammad Shia-Suldani and OPEC Secretary-General Haytham Ghaiss highlighted the need for coordination among oil exporters to ensure that prices do not fluctuate and affect both exporters and consumers .

The continued deterioration of the global banking industry may cause WTI crude oil prices to approach the $60 mark.

The focus is now on the Federal Reserve's two-day interest rate meeting that ends on Wednesday. Some people expect the Fed to raise interest rates by 25 basis points, which is lower than previous expectations. However, the uncertainty of future policy prospects is expected to drive up market volatility.

Other headwinds have also kept a lid on oil prices, such as a continued build in U.S. stockpiles, pointing to a possible glut in the world's largest oil consumer.

CME's latest crude oil trading data

The latest data from the CME Group crude oil futures market showed traders increased their open interest for the third straight day on Friday, adding about 6,600 contracts now. At the same time, trading volume resumed its momentum, increasing by about 309,400 contracts.

Open interest and trading volume both rose following a sharp drop in WTI crude oil prices on Friday. In this regard, oil prices are most likely to continue the current decline in the short term, with a short-term target of $60.


WTI Oil Price Technical Analysis

WTI oil prices retreated after bouncing off 15-month lows hit in the previous session as relative strength indicators became oversold.

At present, WTI oil prices are still well below the confluence of previous key supports, which converges with the 10-day moving average and the upward trend support line since December 2021, which currently constitutes a resistance level around $71.20.

However, it should be noted that a rebound in WTI could point to $70.

That said, a horizontal area of multiple levels from early January (around $72.70) appears to be the key resistance for WTI bulls to regain control.

After that, the mid-month high around $77.55 could be a target for bulls.

In addition, if WTI oil prices start a new round of downward trend, it may point to the December 2021 low near $62.30.

It is worth mentioning that the upward trend line since August 2021 is also around $62.30, which seems to be the key downside target for WTI oil prices.

If WTI oil prices continue to bearishly fall below $62.30, it is not ruled out that WTI oil prices will fall to the August 2021 low of $61.80, and then round to $60.00.

WTI Oil Prices Daily Chart

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