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Oil Markets Are Fully Focused On Interest Rate Hikes

Oil market sentiment has never been more fragile. Geopolitics has the power to move these markets, but the real and implied impact on supply and demand remains elusive, the financial markets hold much more immediate sway. 

What started as the Silicon Valley Bank (SVB) failure and spread to Signature Bank, eventually bringing down shares of other regional banks in the U.S., was exacerbated by a sell-off of Credit Suisse shares. Oil prices tanked in response. The fear of failed bank contagion spreading to the wider financial market would put paid to hefty oil demand projections.

While some have suggested that the dust is likely to settle soon on the banking crisis and that oil will bounce back quickly, the question of future interest rate hikes still makes everyone nervous. 

At the same time that the Swiss National Bank offered Credit Suisse a $54-billion lifeline, the European Central Bank (ECB) raised interest rates by 50 basis points. That partially explains crude’s brief 2% recovery on Thursday, for which a central bank rate hike acted as a spoiler. Before the bank scare, analysts had been expecting the ECB to hike rates by 25 basis points in May and again in June. Now, there’s even more uncertainty over hikes, which means more uncertainty for oil. Oil markets will now be hanging on every whisper from the U.S. Fed. 

When SVB failed, plenty of analysts immediately speculated that the U.S. Fed might give up its aggressive…

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