Oil Surviving the First Test After the Crash As the Sentiment Improves
The Oil markets experienced a massive risk aversion this week due to the re-emergence of banking fears. On Monday, JP Morgan agreed to take on depositors from First Republic Bank, but it wasn’t until Tuesday that the mood really shifted. As a result, regional banks such as PacWest Bancorp and Western Alliance saw their respective share prices plummet.
The Nasdaq regional banking index opened with a significant 3.3% gap down, reflecting the market’s pessimistic sentiment towards these banks. This return of banking turmoil, coupled with the FED’s recent interest rate hike, led to a significant risk-off move in crude Oil. The weight of the move was enough to overcome any support that OPEC’s recent supply cut formed.
WTI Oil Weekly Chart – The 200 SMA Held As Support
Oil continues to trade in the range
On Monday, JP Morgan agreed to accept depositors from First Republic Bank, which was facing difficulties. However, it was on Tuesday that the situation took a more dramatic turn, and market volatility increased. Regional banks such as PacWest Bancorp and Western Alliance experienced substantial declines in their share prices. This banking turmoil coincided with the Federal Reserve’s potential final interest rate hike, adding to the overall sense of unease.
The return of banking concerns had a strong impact on the crude Oil market. Oil is often considered an indicator of future economic activity, and the market responded to the increased risk aversion by selling crude Oil aggressively, with US WTI crude falling to $63.70 according to my broker. This selling pressure outweighed any potential support that could have been provided by OPEC’s recent decision to cut Oil supply.
Although, the 200 SMA (purple) held as support on the weekly chart, and in the last two days we saw a pullback higher, sending WTI above $70. Overall, the combination of risk events, banking fears, and the oil market’s reaction has created a “risk-off” environment, with investors displaying a cautious outlook for Oil as a result of bleak future economic conditions.