Oil prices were steady in afternoon trading on Tuesday after falling nearly 1 per cent earlier in the session amid concerns that the US Federal Reserve will go ahead with an interest rate increase despite the turmoil in financial markets.
Brent, the benchmark for two thirds of the world’s oil, was trading 0.66 per cent higher at $74.28 a barrel at 1.26pm UAE time.
West Texas Intermediate, the gauge that tracks US crude, was up 0.69 per cent at $68.11 a barrel.
Brent crude settled 1.12 per cent higher at $73.79 a barrel on Monday while WTI was up 1.35 per cent at $67.64.
Financial markets closed higher the previous day as a takeover of Credit Suisse by UBS — Switzerland’s largest bank — eased fears of a banking crisis.
UBS agreed to buy its smaller rival for $3.2 billion to try to avoid more turmoil in global financial markets.
The deal came after the failure of two major US banks last week, which prompted a widespread and frantic response from the US government to prevent any additional bank panics.
“Financial markets seemed to calm down, eventually, following the quickly arranged sale of Credit Suisse to UBS. Major equity indices closed the day higher while benchmark bond prices had a more muted close,” said Edward Bell, senior director of market economics at Emirates NBD.
“Uncertainty over how much of a knock-on effect there will be from the strain in financial markets on to commodities will mean a strong rally from here is a challenge and there is potential for more limited downside ahead.”
Fed officials will meet later today and consider whether to increase interest rates to tame stubborn inflation or to temporarily halt such a move given the turmoil in global financial markets.
“Oil still looks heavy because it looks like too many traders are expecting the Fed to pause going into this meeting,” said Edward Moya, a senior market analyst at Oanda.
“That means a much more severe recession could get priced in if the Fed hikes or keeps the door open that they could at the next meeting.”
Despite the market unrest, the European Central Bank decided to raise interest rates by 0.5 per cent last week and said there was no need for its monetary policy plans to be adjusted.
Brent crude fell by about 12 per cent last week to its lowest levels since 2021 as investors sought out safe-haven assets such as bonds and precious metals amid fears of a new financial crisis.
Goldman Sachs has reduced its oil price forecasts for 2023, citing growing crude supplies and lower demand.
The investment bank now expects Brent to trade at $94 a barrel for the coming 12 months and $97 in the second half of 2024. It had previously projected that the benchmark would trade at $100 in both scenarios.
Goldman Sachs said that the lower estimates also reflected higher-than-expected crude stocks, lower demand and growing production in non-Opec countries.
Riyadh-based Al Rajhi Capital said oil prices are "healthy", despite the recent volatility, as supply remains tight.
Demand downside risks are "limited" as fuel consumption is expected to rebound in emerging economies, the bank said.
The American Petroleum Institute is expected to publish its report on US crude oil inventories today.
