Trembling banking sectors stifle prospects for increased crude demand

This week energy traders shifted their attention from China’s reopening prospects and focused on the US and Europe, as the collapse of SVB y Signature bank alongside the recent turmoil from Credit Suisse’s default risk, put the entire banking sector on red alert. WTI shed more than 13% of its price over a three-day period reflecting fears for contagion and is currently found trading at $68 per barrel, near 15-month low levels.  In this report we aim to shed light on the catalysts driving WTI’s price, assess its future outlook and conclude with a técnico analysis.

Turmoil in banking sectors stokes fears for economic downturn

Turmoil in both the US y European banking sectors seem to be fueling bearish bets for crude, as energy traders downgrade their optimistic outlooks for a rebound in WTI prices and side with caution. It all started on Wednesday last week with the collapses of both the Silicon Valley Bank y Signature Bank which send shockwaves across the United States banking sector and boosted speculations for a contagion on the international financial system. The situation got out of hand quickly as 2008-like bank run scenarios flashed before investors eyes. During the weekend the FDIC, the Federal Reserve and the Treasury Department of the US held a joint meeting to discuss how to address the problem in attempts to contain the situation from turning into a full-fledged panic meltdown. The agencies decided to unanimously step in and “bailout” SVB uninsured depositors’ money, promising access by Monday morning. The markets nerves appeared calm during Monday’s session with the banking institutions share prices recovering, finding support from the positive news.

The following day however, the fire reignited. This time in Europe and the main culprit was Credit Suisse. The Swiss bank has been making headlines for all the wrong reasons and its share price has been slowly but steadily shedding value week after week for the past year, to say the least, partly due to internal structural problems and stagnating profitability. And as SVB’s failure sent shockwaves across the global banking sector, the pressure on the bank intensified. The bank’s CEO Ulrich Koerner attempted to calm the markets nerves during a Bloomberg interview on Tuesday and openly asked from investors to trust the process. He stated that the bank has been implementing its transformation plans and more time is needed for the appropriate results to surface. He added that following the SVB upheaval, the bank saw material inflows on Monday, which were apprehended as a positive sign according to the CEO and the statement somewhat cushioned the intraday fall.  What followed the next day however took everyone by surprise.

At another Bloomberg interview Credit Suisse’s largest investor the Saudi National Bank, when asked whether provide any additional funding to the its distressed counterparty, the answer was an explicit resolute no.

The comments delivered a devasting blow to Credit Suisse’s stock, causing it to free fall into its all-time lows and swap market probabilities for a default jumped by 17% to 57%, kickstarting a confidence crisis for the entire European banking industry. The event put excess pressure on the Swiss National Bank to address the situation and forced its hand to cast a $54 billion lifeline to Credit Suisse to avoid contagion, prevent mass panic from spreading across the entire banking industry and minimize severe implications for financial stability worldwide.

As a result, the prospects for a systemic overspill scenario kept energy bulls at bay, as the bears rode the negative momentum wave and dragged WTI prices to levels once seen before in December of 2021. Prolonged fears for a contagion which may impede growth and accelerate the deterioration of economic conditions could keep oil prices suppressed until the matter is contained.

Análisis técnico

WTICash 4H Chart

• Support: 65.80 (S1), 62.30 (S2), 58.50 (S3)
• Resistance: 71.60 (R1), 75.50 (R2), 80.00 (R3)

Looking at WTICash 4-hour chart we observe crude sinking over the past few days to levels once see before in December of 2021, as the collapse of SVB alongside Credit Suisse’s stock plunge yesterday, clouded optimism for increased demand levels for oil from the US and European nations.

We hold a bearish outlook bias for the commodity, yet we highlight that a correction to higher ground may be imminent should fear for contagion subsides. Supporting our case is the RSI indicator below our 4-hour chart which currently registers a value of 29, just below the 30 oversold threshold, which showcases the extreme bearish sentiment surrounding WTI.

Furthermore, the breach of the lower bound of the Bollinger band on multiple occasions, indicates that the bears are indeed in control, but a correction may be due. Should the bears extend their reign, we may see the break below the 65.80 (S1) support level and the move near the 62.30 (S2) support base, a level once seen before in August of 2021. Should the bulls take the initiative, we may see the break above the 71.60 (R1) resistance level and the move near the 75.50 (R2) resistance barrier.

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