Oil market sentiment has never been more fragile. Geopolitics has the power to move these markets, but the real and implied impact on supply and demand remains elusive, financial markets have a much more immediate impact.
What started as the failure of Silicon Valley Bank (SVB) and spread to Signature Bank, eventually bringing down the shares of other regional banks in the US, was exacerbated by a sell-off in Credit Suisse shares. Oil prices fell in response. Fears of failed bank contagion spreading to the broader financial market would appreciate large oil demand projections.
While some have suggested that the dust is likely to settle soon on the banking crisis and that oil will bounce back quickly, the question of future rate hikes still has everyone nervous.
At the same time as the Swiss National Bank offered Credit Suisse a $54 billion lifeline, the European Central Bank (ECB) raised interest rates by 50 basis points. That partly explains crude oil’s brief 2% rally on Thursday, when a central bank rate hike acted as a spoiler. Before the banking scare, analysts had expected the ECB to raise interest rates by 25 basis points in May and again in June. Now there is even more uncertainty about increases, which means more uncertainty for oil. The oil markets will now hang on every whisper from the US central bank.
When the SVB failed, plenty of analysts immediately speculated that the US Federal Reserve might abandon its aggressive rate hike policy in light of…
Oil market sentiment has never been more fragile. Geopolitics has the power to move these markets, but the real and implied impact on supply and demand remains elusive, financial markets have a much more immediate impact.
What started as the failure of Silicon Valley Bank (SVB) and spread to Signature Bank, eventually bringing down the shares of other regional banks in the US, was exacerbated by a sell-off in Credit Suisse shares. Oil prices fell in response. Fears of failed bank contagion spreading to the broader financial market would appreciate large oil demand projections.
While some have suggested that the dust is likely to settle soon on the banking crisis and that oil will bounce back quickly, the question of future rate hikes still has everyone nervous.
At the same time as the Swiss National Bank offered Credit Suisse a $54 billion lifeline, the European Central Bank (ECB) raised interest rates by 50 basis points. That partly explains crude oil’s brief 2% rally on Thursday, when a central bank rate hike acted as a spoiler. Before the banking scare, analysts had expected the ECB to raise interest rates by 25 basis points in May and again in June. Now there is even more uncertainty about increases, which means more uncertainty for oil. The oil markets will now hang on every whisper from the US central bank.
When the SVB failed, plenty of analysts immediately speculated that the US central bank might abandon its aggressive rate hike policy in light of the pressure on the banks, so the ECB’s move came as a bit of a surprise. Many thought the bank would pull back on the hike given the situation with Credit Suisse, which put a lot of pressure on other European banks. If other central banks around the world also stick with already existing interest rate hikes, we can expect oil prices to remain very volatile.
Now, even as America’s biggest banks have come together to bail out First Republic with a $30 billion lifeline after the bank’s shares fell 70% following the SVB collapse, the market remains on high alert. It might not be enough. Why? Because in recent days, US banks have been reaching out to the Fed for record levels of emergency liquidity, suggesting that the crisis is not over yet.
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