Crude oil higher as sentiment improves; API inventory data due

(C) Reuters.

By Peter Nurse

Investing.com — Oil prices climbed higher Tuesday, boosted by the improving near-term outlook for the banking sector, thus lessening concerns about future economic activity and the demand for crude.

By 09:00 ET (13:00 GMT), U.S. crude futures traded 1.7% higher at $68.97 a barrel, while the Brent contract rose 1.5% to $74.89 a barrel.

Sentiment across the U.S. banking sector has improved following the takeover of Credit Suisse (SIX:CSGN) by Swiss rival UBS (SIX:UBSG), as well as the decision of the Federal Reserve, along with other major central banks, to boost market liquidity.

Comments from Treasury Secretary Janet Yellen, reported ahead of her speech to the American Bankers Association, also helped the tone as they offered hope of more official support for U.S. banks if needed, similar to the support given to Silicon Valley Bank’s depositors after its collapse earlier this month.

“Similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion,” Yellen will say, according to various reports citing the advance text.

The crude benchmarks had fallen to 15-month lows at the start of the week on fears the turmoil would result in banks curbing their lending as they stored cash, stifling economic activity and thus demand for energy in the world’s largest consumer.

The next focus for investors is the Federal Reserve‘s two-day policy-setting meeting, starting later this session.

Since the banking strife began this month, markets have revised down expectations for the next Fed rate hike to 25 basis points from 50 bps, which has hit the dollar hard.

The dollar index fell to a five-week low on Monday, helping support the crude market as a weaker dollar makes commodities which are denominated in dollars, like crude, cheaper for foreign buyers.

The market was also supported by comments from the CEO of Trafigura, one of the world’s largest traders, saying that there is “not much downside from here” given the unresolved issues on the supply side of the market.

Russia has now surpassed Saudi Arabia as China’s biggest oil supplier with refiners taking advantage of cheap barrels to feed rebounding demand in Asia’s biggest economy following the end of Covid Zero.

This also suggests that Russia has failed to follow through with its stated aim of reducing its global output by 500,000 barrels a day in March in response to Western sanctions on its crude.

Elsewhere, the American Petroleum Institute is scheduled to release its estimate of U.S. crude inventories later in the session. They rose by just over 1 million barrels last week, resuming their climb after a one-week decline.

The API numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Wednesday.