Oil lower as banking turmoil holds down sentiment

Oil drifted lower on Tuesday as more than a week of banking turmoil kept weighing on market confidence.

Brent crude futures for May settlement LCOc1 dropped 71 cents, or 1%, trading at $73.08 per barrel at 0514 GMT. US West Texas Intermediate (WTI) crude CLc1 futures were down 74 cents, or 1.1%, to $66.90 a barrel.

In the previous session, both Brent and WTI fell about $3 a barrel before settling higher. That followed UBS throwing a lifeline to Credit Suisse and major central banks saying they would enhance market liquidity and support the banking system.

The April WTI contract will expire on Tuesday. The May contract, now the most active, Clc2 fell 64 cents, or 0.9%, to $67.18 a barrel.

"Oil prices now mainly depend on influences on investor confidence at the macro-level," said analysts from Haitong Futures. "If the banking crisis does not spread further, market sentiment may stabilise and oil prices will have a chance to recover."

One influence will be the decision by the Federal Reserve on whether and by how much to raise interest rates after concluding a two-day meeting on Wednesday.

Since the banking strife began this month, the market estimate of the most likely size of the next Fed move has fallen to 25 basis points from 50 bps.

Officials with the G7, meanwhile, said the Group of Seven Nations was unlikely to go ahead with a planned revision of a $60-per-barrel price cap on Russian oil. The officials said the European Commission had told EU countries' ambassadors over the weekend there was no pressing desire in the G7 for an immediate review.

OPEC+, which includes the world's top oil exporting countries and allies including Russia, is set for a meeting on 3 April. The group agreed in October to cut the target for daily oil production by 2 million barrels until the end of 2023.

US crude exports to Europe have hit a record 2.1 million barrels per day on average so far this month, spurred by a drop in the WTI price relative to Brent and by weaker oil demand by US refineries.

A preliminary Reuters survey showed that crude oil and product inventories in the U.S were estimated to have fallen last week.