Macro Pressures Weigh on Crude

Macro Pressures Weigh on Crude
'With macro risks mounting, bullish sentiment appears to be weakening'.

Recently, macro pressures - such as Fed hawkishness and the Silicon Valley Bank fallout - have weighed on crude, countering China-driven bullishness.

That’s according to a new Macquarie Bank Limited report sent to Rigzone this week, in which, analysts at Macquarie Bank Limited noted that they believe Chinese purchasing and associated market optimism over the past few months has been “the key bullish force offsetting heavy global balances”. The analysts added in the report, however, that, “with macro risks mounting, bullish sentiment appears to be weakening as structure becomes less backwardated for both WTI and Brent”.

“At the end of February, Brent strength started to soften as U.S. exports increased while freight rates and spreads started to favor purchasing in the Americas,” the analysts stated in the report.

“Thus far for March, the physical strength of the Brent market has held flat overall after widening by $0.08 per barrel going from ($0.11) to ($0.19) between March 3 and March 8, demonstrating some ST weakness over that period,” the analysts added.

“Over the same period, Johan Sverdrup vs Dated N. Sea has reversed the rally seen over the beginning of the year, decreasing by $0.85 per barrel over the last week. Additionally, the Brent – Dubai spread has narrowed, falling by $0.97 per barrel since the beginning of the month,” the analysts continued.

“All told, the pull from elevated Chinese imports in the Brent Complex appears to be showing signs of relaxation as physical strength trends since the beginning of the year are starting to revert,” the analysts went on to state.

In the report, the analysts noted that, in the past month, they believe the Brent Complex has started to balance “and is not as tight as earlier this year”. They added that they continue to expect a “soft” 2023 global balance and warned that, “given that macro risks have grown in prominence, the softening sweet market could potentially be an early indicator of demand challenges”.

Scattergun Approach

In a separate report sent to Rigzone this week, analysts at Standard Chartered said they think the oil market has taken a “scattergun approach” to fundamentals so far this year, “with prices moved by often inconsistent reactions to various individual themes rather than by a single overarching fundamental narrative”.

“Positive news about China’s economy has generally been price supportive for oil, but positive news about the U.S. economy has tended to be negative on the basis that it might extend the rate-hiking cycle and drive money out of riskier asset classes,” the analysts stated in the report.

“The response of traders to recent U.S. bank failures has reflected some of that inconsistency, particularly trader decisions on how to balance concern about contagion risk and increased risk aversion with suggestions that the peak in rates in this cycle might be flattened as a result of banking-sector fragilities,” the analysts added.

“The immediate market response to the bank failures was to drive Brent down to a two-month low of $78.34 per barrel intra-day on March 13, temporarily opening a potential path down to challenge the 14-month low of $75.11 per barrel set in early December 2022,” the analysts continued.

The Standard Chartered analysts noted in the report that they would see any further slide towards $75 per barrel as a potential buying opportunity “as it should bring a likely OPEC response back into focus for traders”.

“In our view, responding quickly and proactively to price dips caused by systematic macro risks has been one of OPEC’s strengths in recent years,” the analysts said in the report.

“We think further price dips as a result of financial market contagion fears would likely start informal discussions among OPEC ministers about the possibility of an output cut,” the analysts added.

Silicon Valley Bank

On March 10, the Federal Deposit Insurance Corporation (FDIC) announced that Silicon Valley Bank in Santa Clara, California, was closed by the California Department of Financial Protection and Innovation, which it said appointed FDIC as receiver.

“To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank,” FDIC said in an organization statement.

“All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023,” the organization added.

Silicon Valley Bank had 17 branches in California and Massachusetts, FDIC highlighted, adding that, as of December 31, 2022, the bank had $209.0 billion in total assets and about $175.4 billion in total deposits.

“At the time of closing, the amount of deposits in excess of the insurance limits was undetermined. The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers,” FDIC said.

To contact the author, email andreas.exarheas@rigzone.com


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