Brent nosedives to lowest level since December 2021

Front-month ICE Brent has plummeted by $4.18/bbl on the day from Friday, to $71.17/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

The market is seeing signs of a steady demand recovery from China. According to Bloomberg, Unipec, the trading arm of Chinese oil and gas major Sinopec, has bought 2 million bbls of the North Sea’s Johan Sverdrup crude. The purchase indicates that Chinese refiners are predicting an increase in fuel demand.

“If the price of crude oil is going to recover, it looks like it will have to take place in the second half of the year,” SPI Asset Management’s managing partner Stephen Innes says. “Nonetheless, prospects for a second-half price recovery remain fuzzy as much will depend on China's reopening and OPEC+'s production strategy.”

OPEC secretary general Haitham Al Ghais and Iraq’s Prime Minister Mohammed Shia al-Sudani have discussed “coordinated action” to ease oil market volatility and limit adverse effects for oil importers, according to a Reuters report citing the Iraqi government.

Stephen Innes has also suggested that OPEC+ might resort to another production cut if “global demand falters” because of the banking crisis and a further Brent price decline.

Downward pressure:

A historic deal brokered by the Swiss government will see Switzerland's largest investment bank UBS acquire the nation's second-largest investment bank Credit Suisse. However, the multi-billion dollar deal has not alleviated the concerns of oil market investors as the spotlight remains on the banking crisis and the turmoil in the financial market.

“The failure of SVB [Silicon Valley Bank] has seen investors take flight to safety, with risk assets coming under pressure. They have also become increasingly concerned about the economic backdrop, with the instability of the banking sector in the US is increasing further downside risks to growth,” ANZ’s commodity strategist Daniel Hynes has said.

The renewed risk of recessions in the US and Europe and its potential impact on global oil demand are also major headwinds for Brent prices right now. Data indicates that the US economy is headed for a "crash landing," according to veteran economist David Rosenberg.

The risk of recession is “forcing bulls to run for cover and producers to hedge against the downside price risk,” says Stephen Innes.

There is also uncertainty regarding the US Federal Reserve's (Fed) upcoming policy meeting on Wednesday. Several experts believe that the Fed will pause its aggressive interest rate hikes due to the US banking meltdown. However, some think the Fed could continue to raise its key interest rate after the European Central Bank hiked its rate by 50 basis points.

By Konica Bhatt

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