Prices Extend Recovery as Banking Sector Jitters Fade

WTI CRUDE OIL OUTLOOK:

• Oil prices rise as risk assets extend their rebound
• The easing of turmoil in the banking sector seems to be contributing to the market’s positive mood
• Despite recent gains, the outlook for oil remains somewhat challenging

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Oil prices (WTI futures) advanced on Tuesday, extending their recovery from 15-month lows and rising for a second consecutive day, buoyed by a positive mood on Wall Street as turmoil in the U.S. banking sector continued to ease, reducing the likelihood of further stress that could be detrimental to the global economy.

In recent days, sentiment has been subdued after the collapse of two mid-sized U.S. regional lenders spooked investors and threatened to destabilize markets, but swift action by government authorities to shore up the financial system has helped restore confidence, at least to a certain degree.

With banking jitters fading for now, traders are starting to return to risk assets, bidding their prices higher and creating a more constructive environment for cyclically oriented commodities. While this dynamic has allowed WTI to rebound, its outlook is still fraught with considerable uncertainty.

A key risk for oil going forward is global demand. Although Chinese crude demand is expected to increase as activity normalizes following the removal of COVID-19 pandemic restrictions, this bonanza could be offset by lower U.S. energy consumption should the American economy enter a recession this year.

It is still uncertain whether the U.S. will hit a downturn in 2023, but the probability of this event has risen of late in the wake of the recent banking crisis, with this shock seen leading to tighter credit conditions and, therefore, slower economic activity. This can weigh on oil demand in the coming quarters.

OIL PRICE TECHNICAL ANALYSIS

After recent gains, oil is approaching a key technical resistance near the psychological $70.00 level. If bulls manage to push prices above this barrier, we can see a move toward $72.50. On further strength, the focus shifts to the $76.00 area. Conversely, if sellers return and trigger a bearish reversal, initial support comes at $66.25, followed by $64.40. Below that floor, the next downside target rests at $62.25.

OIL PRICE TECHNICAL CHART

WTI Oil Futures Chart Prepared Using TradingView