Crude oil price posted its highest weekly loss sine the onset of the coronavirus pandemic amid the banking crisis. WTI futures, the benchmark of US oil, lost close to 13% in the course of the week. Earlier on Friday, it dropped to $65.29; a level last reached in December 2021.
What’s driving the crude oil market?
A look at the recent crude oil price movements indicate that optimism regarding China’s reopening was somewhat premature. Notably, this was one of the key bullish factors that boosted the asset in the initial weeks of 2023. However, it is evident that China’s recovery needed more support. Indeed, the recorded rallying was largely based on the market sentiment rather than the actual demand/supply dynamics.
In the ensuing sessions, the market drivers will be largely financial. Recent events have proved that in addition to demand and supply, crude oil price is heavily influenced by macro economics.
To begin with, traders remain wary over the deepening of the banking crisis worldwide. The collapse of Silicon Valley Bank and troubles at Credit Suisse yielded a selloff in crude oil and other risk assets. After hitting a 15-month low, 43,000 options contracts totalling to over 40 million barrels of crude oil came “into the money”.
In the coming week, investors will also be eyeing the Fed interest rate decision scheduled for Tuesday. Notably, high interest rates are one of the reasons behind the banking crisis. As such, investors are fearful that further rate increases may push the economy into a recession. Such an environment would likely push crude oil price lower past the crucial zone of $70.00.
WTI crude oil price forecast
At the onset of next week, WTI oil may continue to find support at the aforementioned level ahead of the Fed interest rate decision. However, hints that the central bank will continue with its rate increases may give the bears an opportunity to hit a fresh 15-month low at 62.50. On the flip side, a dovish tilt will have the bulls eyeing the psychological zone of 70.00.