Oil prices rebounded and rose over 1% on Monday after diving to their lowest levels in 15 months as the market worried that risks in the global banking sector could spark a recession that would reduce fuel demand.
Prices stabilized on Tuesday after falling early in the previous session on investor worries that recent banking-sector problems would weigh on the global economy and limit demand for crude.
In volatile trade, Brent crude futures for May rose 82 cents or 1.1% to $73.79 a barrel. U.S. West Texas Intermediate crude futures for April gained 90 cents, or 1.4%, at $67.64 on the eve of the contract’s expiry. The more actively traded May futures rose 89 cents, or 1.3%, at $67.82 a barrel.
Oil prices rebounded as Wall Street posted gains. Earlier, Brent and WTI fell about $3 a barrel to the lowest since December 2021, with WTI sinking below $65 a barrel at one point. Last week, both benchmarks shed more than 10% as the banking crisis deepened.
Crude oil has been on a declining trajectory since last June when it reached $124 per barrel.
Over the weekend, Goldman Sachs cut its forecast for Brent crude futures, after prices fell 15% since early March due to banking concerns and recession fears, according to Reuters.
In a March 18 note, the bank predicted that Brent would average $94 per barrel in the next 12 months and $97 in the second half of 2024, down from $100 previously.
According to Bloomberg, “The bank said in the note that oil prices fell despite the boom in demand in China, due to pressures about the banking crisis, recession fears, and an exodus of investor inflows.”
Bloomberg adds that historically, price trend identification, particularly for long-term prices, improves with such events.
The bank reduced its demand forecasts for Europe and North America in 2023 while raising its expectations for China.
This resulted in a 600,000 barrel per day reduction in the 2024 estimate, while the demand forecast for 2023 remained unchanged.
Oil fell to a 15-month low, with Brent crude, considered the benchmark for global oil prices, dropping 13% to $70.12 per barrel, according to market data.
Following this price decline, Goldman Sachs predicts that members of the Organization of Petroleum Exporting Countries (OPEC) will increase output in the third quarter of 2024, Reuters reported.
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OPEC stated in its monthly report last Tuesday that global oil demand will rise by 2.3 million barrels per day in 2023, confirming its expectations from the previous month.
According to AFP, the total average demand for oil is expected to reach 101.9 million barrels per day in 2023, a record high.
The Federal Reserve will decide on interest rates on Wednesday. When the central bank raises interest rates, oil prices tend to fall. The collapse of Silicon Valley Bank was prompted in part by the Fed’s rate hikes aimed at inflation over the previous year, as tech startups became more risk-averse due to more expensive borrowing.
The OPEC+ alliance, led by Saudi Arabia, will meet again on April 3 to discuss output levels. Since last November, the cartel has maintained its 2 million barrels per day supply cut.
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