WTI rebounds as banking concerns ease and geopolitical tensions rise

2023-03-27 16:54:51

West Texas Intermediate (WTI) prices are surging toward the $70 mark on Monday, as some investor concerns about ongoing bank headwinds eased. Sentiment has been boosted by some swift efforts by major central banks, including the Federal Reserve and the U.S. Treasury. Therefore, risk appetite remains firm. In this positive development, oil prices have rebounded from the $67 mark.

Over the weekend, the FDIC issued a statement announcing that First Citizens BancShares Inc bought all of SVB's loans and deposits and gave the FDIC stock equity worth up to $500 million in return, according to Reuters. The development appeared to contribute to an improvement in risk sentiment earlier on Monday.

Oil markets are closely watching the sentiment in financial markets, while oil's fundamentals remain in the cold. Over the past few days, oil markets have been mirroring volatility in financial markets.

The rebound from the $67 mark is likely to be driven by a weaker dollar, and for oil prices to sustain a break above the $70 mark, there needs to be a strong fundamental driver, such as the banking crisis fully dissipating.

Some comments from several Fed policymakers dampened safe-haven demand for the greenback.

"The recent stress in the banking sector and the possibility of a subsequent credit crunch has brought the U.S. closer to recession," Minneapolis Fed President Neel Kashkari said in an interview on CBS' "Face the Nation." What's less clear is the extent to which these banking stresses are causing a broad credit crunch. That credit crunch would slow the economy. That's something we're monitoring very, very closely."

Oil prices also received some support from Russian President Vladimir Putin's comments that he would station tactical nuclear weapons in Belarus, which escalated geopolitical tensions in Europe over Ukraine. Obviously, further escalation on the part of Russia and Ukraine means higher oil prices. Although both NATO and the US have condemned it, attributing the move as "dangerous and irresponsible".

Russia's tactical move to cut oil production can be attributed to the understanding that Russian crude stockpiles have been rising since last September and that the country may want to avoid further builds. The production cuts may need to be extended beyond June if Russia wants to reduce the stockpiles it has built up.

Despite a lot of activity on the fundamentals of oil, oil prices have been unable to reach the levels that the Organization of the Petroleum Exporting Countries (OPEC) wants. For now, until the turmoil in the banking sector is resolved, oil prices may take their cues from risk sentiment. As various factors continue to impact the global economy, investors and market participants will closely monitor financial and oil market developments, as well as geopolitical tensions, to make informed decisions.

CME's latest crude oil trading data

Preliminary data on the crude oil futures market from CME Group pointed to traders increasing their open interest for the fourth straight session on Friday, rising by about 5,500 contracts on the day. Volume rose by nearly 41,000 contracts after four straight sessions of declines.

Friday's recovery from below the $67.00 mark, accompanied by rising open interest and trading volume, favors continued recovery in WTI prices in the short term. A convincing move above the key $70.00 mark should expose the potential for a move towards the nearest weekly high near $71.60 (March 23).


WTI Oil Price Technical Analysis

On the downside, a break below $64.41 (March 20, 2023 low) would target $61.76 (August 23, 2021 monthly low), then $61.58 (May 21, 2021 monthly low) .

On the upside, the previous day's high of $70.42 will act as an initial resistance.

The next resistance is at $71.69 (weekly high March 23).

Then there is $76.43 (50-day moving average).

The 100-day moving average is near $77.64.

Last at $80.90 (monthly high March 7).


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