Oil surged on a fading concern of another 2008 type GFC

Oil (WTI-April Exp) plunged to a low around 64.38 early European session Monday on the concern of another ‘Lehman Moment’ (global banking crisis) even after the Swiss government almost forced UBS to buy out (take over) Credit Suisse in a hectic move late Sunday. As a result CD of UBS jumped, while the scrip plunged, dragging stock markets on both sides of the Atlantic as well as the Pacific on the concern of contagion.

As per WSJ reports, economists found 186 small and dozens of mid-size U.S. regional banks may face risks similar to SVB. Also, two major banks in Europe examine scenarios of contagion and look to the ECB and Fed to step in with statements of support. Gold also jumped to a multi-month high of around $2010 along with the Japanese Yen and U.S. bonds on haven flow.

But by the opening of the U.S. session, all reversed on hopes of a Fed/ECB pause after dovish talks by ECB’s Lagarde. Also, the U.S. FDIC extends the bid window for the Silicon Valley Bridge (SVB) until March as there has been substantial interest from multiple parties. Thus the overall tension of the banking crisis eased and risk trade got a boost. Oil also recovered and made a high around 67.70 late Monday and further jumped to around 69.63 on a fading concern of another 2008 GFC (Global Financial Crisis), as whatever may be the narrative, major or even minor global central banks and governments will not allow another 2008 ‘Lehman Moment” by acting promptly (whatever it may take an approach is too big to fall category) for the sake of financial (Wall Street) stability. Overall, oil lost almost -10% in March (till date) and made a low of around 64.38, the lowest since Dec’21 (COVID era).

On late Monday, oil was also boosted as China’s Unipec placed a huge import order of 2 MB of North Sea Johan Sverdrup Crude. Also, other data shows China’s oil imports surged +12% annually (y/y). There was also some report that Saudi Arabia and Russia may be discussing internally any step to promote stability and rebalancing in oil. Saudi Arabia energy minister Prince Abdulaziz bin Salman (ABS) recently said OPEC+ would stick to production cuts agreed upon in Oct’22 until Dec’23. Investors also remained optimistic about a rebound in Chinese demand, with OPEC raising its forecast for the country's oil demand growth in 2023 after exiting from the ZERO COVID policy in late 2022, which should boost industrial and mobility/travel/transportation demand.

Overall, as per OPEC’s latest MOR (March), the supply of oil may be higher than demand by +0.43 MB in 2022 against -1.55 MB lower in 2021. Thus oil slumped. But looking ahead, oil production may be lower than demand by -0.40 MB in 2023, which may keep a floor for oil.

On late Tuesday, oil slipped from around 69.60 after the API inventory report shows unexpected crude build-up:

·         US API Crude Oil Stock Change Actual 3.262M (Forecast -1.448M, Previous 1.155M)

·         US API Cushing Stock Change Actual -0.76M (Forecast -, Previous -0.946M)

·         US API Distillate Stock Change Actual -1.84M (Forecast -, Previous -2.886M)

·         US API Gasoline Stock Change Actual -1.09M (Forecast -, Previous -4.587M)

Now if the EIA report comes lower than API, then oil should surge to some extent and vice-versa.

Bottom line:

Looking ahead, whatever may be the narrative, technically oil now has to sustain above 70.50-71.00 for any further rally to 83.50 and higher; otherwise, sustaining below 70.00, the oil may again fall in the coming days; positional support 65.50-63.00.