BAKU, Azerbaijan, April 3. This month Fitch Solutions has made a downward revision to its Brent crude price forecast for 2023, Trend reports.
“We now expect prices to average USD85/bbl, down from USD90/bbl previously. This would mark a steep 14 percent y-o-y decline from the USD99/ bbl average seen in 2022. In part, the revision has been made in response to the recent losses in Brent, stemming from rising stress in the banking sector,” reads the latest report from Fitch Solutions.
Signs of strain emerged in early March, when deposit runs in the US triggered the collapse of Silvergate, Silicon Valley Bank and Signature Bank. Pressures quickly spread to Europe, toppling Swiss behemoth Credit Suisse.
“In our view, risks of financial contagion are relatively well-contained. Central banks have a wide range of tools at their disposal with which to prop up the system and have been quick to react to emergent threats. The banking sector itself is also better capitalized and in generally better health than it was during the last global financial crisis, in 2008. Nevertheless, elevated interest rates and an inverted yield curve will continue to squeeze the sector’s profitability, leaving it exposed to renewed bouts of market volatility, which could drag down on oil,” the report says.
The report reveals that over January and February, bullish bets amongst managed money in Brent built rapidly, with long positions increasing by 47 percent, while shorts slumped by more than 60 percent.
“Despite this, Brent failed to break sustainably higher: after ending 2022 at USD82/bbl, the front-month contract fluctuated between USD78-88/bbl over the first two months of the new year. Then, up to March 21, managed money longs fell back by 24 percent, while short positions soared by nearly 150 percent,” says Fitch Solutions.
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