After its worst week and having touched levels unexplored since 2021 on Monday, black gold rose more than 2% on Tuesday.
The barrel was driven by fears over a potentially contagious Credit Suisse crisis, which could have been led to a much wider spread banking crisis. The latter could hit economic growth and dramatically cut fuel demand.
The markets, however, seem reassured by the lack of turmoil and may regain confidence following the takeover of Credit Suisse by Union Bancaire Suisse (UBS), reviving investors' appetite for risk.
Note: Credit Suisse's balance sheet is around twice the size of Lehman Brothers' when it collapsed.
On a macroeconomic level, the US dollar index (DXY/USDX) is retracing towards the next quarterly pivot point (support) S1 around $100. Today’s Fed meeting will be a key one as it is due to take place after we’ve seen in recent days an accumulating number of banks getting hit by higher interest rates.
Regarding an interest rate hike, the probabilities for today’s Fed meeting are as follows:
(Source: CME FedWatch Tool)
But there could be a more surprising outcome if there is no further movement. This could probably be bullish for the commodity market, including crude. A stricter monetary policy could indeed weigh on the world's leading economy by increasing the cost of credit for households and businesses. What accentuates the risks of recession and, therefore, of a drop in demand for oil.
On the geopolitical scene, Xi Jinping returns from Russia after a two-day state visit with a gas deal and a peace proposal for Ukraine, while strengthening relations with Russia and consolidating new power dynamics.
The peace plan unveiled by China for Ukraine has drawn several criticisms from Putin.
The Russian leader disagrees with nearly all the 12 points in Beijing's proposed policy document, which includes a ceasefire and talks, but breaking Russia's isolationism comes at a price, and Xi Jinping made it clear.
Siberia Force 2 can be considered the highlight of Xi Jinping's visit to Moscow.
The gas pipeline that will connect Russia and China via Mongolia has been prepared in the greatest secrecy for two years, but it was announced with great fanfare on this trip.
With a route of more than 2,600 km, the new gas pipeline circumvents Western sanctions imposed on Moscow by seeking to provide an outlet for more than 50 billion cubic meters of gas that could previously have been transported to Europe via Nord Stream 2.
Furthermore, President Putin reiterated his commitment to the de-dollarization of the economy by demonstrating the use of the yuan in trade between Russia and countries in Asia, Africa, and Latin America.
Sebastien Bischeri,
Oil & Gas Trading Strategist