Crude Oil Prices Fall Amid SVB Collapse, but OPEC Predicts Chinese Demand Growth in 2023

Key Takeways

• OPEC has raised its forecast for Chinese oil demand growth in 2023, suggesting a positive outlook for the oil markets.
• The collapse of Silicon Valley Bank has caused short-term volatility in the energy markets, but analysts suggest it may not have a long-term impact.
• The potential weakening of the dollar due to projected interest rate hikes could lead to a bullish signal for oil prices.

Overview

Oil prices fell on Tuesday due to the collapse of Silicon Valley Bank, which triggered concerns about risks to other banks as a result of the US Federal Reserve’s sharp interest rate hikes over the past year.

The sudden shutdown caused US benchmark West Texas Intermediate crude oil to fall over $2 a barrel earlier in the session, with Brent and WTI reaching their lowest levels since early January and December, respectively.

At 16:14 GMT, June WTI Crude Oil is trading at $73.10, down $1.85 or -2.47%. The United States Oil Fund ETF (USO) is at $64.06, down $1.19 or -1.82%.

However, some analysts forecast high volatility in the energy markets in the coming days, while others suggest that the events surrounding the regional US banks should not have any meaningful medium- to longer-term impact on commodity markets.

OPEC Raised its Forecast for Chinese Oil Demand Growth in 2023

Despite volatility concerns, OPEC raised its forecast for Chinese oil demand growth in 2023, while leaving the global total steady. The report cited the US Federal Reserve’s successful management of an inflation slowdown as one of the potential upside factors.

OPEC expects Chinese oil demand to grow by 710,000 bpd in 2023, up from last month’s forecast of 590,000 bpd and a contraction in 2022. However, the report also noted potential downside risks for world growth.

In February, OPEC’s crude oil output rose by 117,000 bpd to 28.92 million bpd. This was helped by a further recovery in Nigeria.

The report also trimmed its estimate of the amount of crude OPEC needs to pump in 2023 to balance the market by 200,000 bpd to 29.3 million bpd, suggesting a less tight market outlook than previously thought.

Traders Anticipate Weaker Dollar to Boost Oil Prices

Traders are no longer expecting a 50-basis point rate hike next week, with projections suggesting a 25 bps rise instead. This could lead to the dollar weakening, which is a bullish signal for oil prices.

Overall, while the collapse of Silicon Valley Bank has caused some short-term volatility in the oil markets. OPEC’s forecast for Chinese oil demand growth and their production outlook suggest a more stable market in the medium-to-long-term.