Crude oil lower; recession fears outweigh Credit Suisse lifeline

By Peter Nurse   

Investing.com -- Oil prices weakened Thursday, handing back earlier gains and heading back towards the previous session’s 16-month low as market sentiment remained fragile despite Credit Suisse’s (SIX:CSGN) financial lifeline.

By 09:45 ET (13:45 GMT), U.S. crude futures traded 1.3% lower at $66.75 a barrel, while the Brent contract fell 1.1% to $72.91 a barrel. Both benchmarks are down over 10% this week, near to the weakest levels since December 2021.

News that troubled Swiss lender Credit Suisse secured a $54 billion credit facility from the Swiss National Bank helped the market recover somewhat during the early hours of Thursday.

But these gains have not lasted long as sentiment remains weak amid concerns rising interest rates coupled with a banking crisis will result in a recession later in the year, severely hitting the demand for oil.

Goldman Sachs raised its probability of the U.S. economy entering a recession in the next 12 months to 35%, from 25%, citing the stress on the regional banking sector, as evidenced by the collapse of three smaller banks in the last week.

Data released earlier Thursday showed that the number of Americans filing new claims for unemployment benefits fell more than expected last week, dropping 20,000 to 192,000, pointing to continued labor market strength.

The Federal Reserve is due to meet next week, and while it could tone down its rate-hiking cycle because of this banking turmoil, its peer the European Central Bank decided to press ahead with its flagged 50 basis-point hike earlier Thursday.

Adding to this week’s woes, U.S. crude inventories grew more than expected last week, according to data released Wednesday. These stocks have now grown for 11 of the past 12 weeks, pushing up concerns over a potential supply glut in the world’s largest crude consumer.

On the supply side, Russia’s exports have remained stubbornly resilient despite a pledge to reduce output, prompting the International Energy Administration to increase its Russian supply estimate by 300 million barrels a day in its monthly report.

What happens next in the market will largely depend on what the Organization of Petroleum of Exporting Countries and allies as well as the U.S. do to impact global supply.

“Given the scale of the move, it is possible that OPEC+ decides to step in to stabilise the market, though until now, the group has been very quiet,” analysts at ING said, in a note. “As for the U.S., the government had previously said that it would look to refill its strategic petroleum reserves if and when WTI trades to around the US$70/bbl region. WTI is trading below this level now and so we will need to see how the US responds, if at all.”