Oil prices rose on Tuesday, settling up more than 2% and extending a recovery from a 15-month low hit the previous day, as the rescue of Credit Suisse allayed concerns of a banking crisis that would hurt economic growth and cut fuel demand.
Measures to stabilise the banking sector, including a UBS takeover of Credit Suisse and pledges from major central banks to boost liquidity, have calmed fears about the financial system that roiled markets last week.
"Fears of a banking crisis and a recession have eased, brightening the oil demand outlook at least for now," said Fiona Cincotta, Senior Financial Markets Analyst at City Index.
Brent crude settled up $1.53, or 2.1%, at $69.33 a barrel, while U.S. West Texas Intermediate (WTI) closed up $1.69, or 2.5% to $69.33.
"A 'risk back on' sentiment seems to be coming back to crude, as the latest selloff may very well have been exaggerated liquidation," said Dennis Kissler, senior vice president of trading at BOK Financial.
The Federal Reserve started its monetary policy meeting on Tuesday. Markets expect a rate hike of 25 basis points, down from previous expectations of a 50 bps increase. Some top central bank watchers have said the Fed could pause further rate hikes or delay releasing new economic projections.
The dollar index slipped, a day after hitting a five-week low. A weaker dollar makes oil cheaper for buyers holding other currencies, which can boost demand.
Wall Street indexes climbed after the rescue of Credit Suisse.
A meeting of ministers from OPEC+, which includes members of the Organization of Petroleum Exporting Countries (OPEC) plus Russia and other allies, is scheduled for April 3. OPEC+ sources told Reuters the drop in prices reflects banking fears rather than supply and demand.
Hedge fund manager Pierre Andurand agreed the latest price drop was speculative and not based on fundamentals. He predicted oil will hit $140 a barrel by year end.
The CEO of energy trader Gunvor, Torbjorn Tornqvist, said he expected oil prices to move higher toward year end as rising Chinese demand tightens the market further.
Attention is turning to the inventory report from the American Petroleum Institute due at 4:30 p.m. EDT (2030 GMT). A Reuters survey expects lower crude and product inventories.
"The damage from the financial sector will still need to calm, and traders will be looking for verification that U.S. demand will not substantially contract," BOK Financial's Kissler said.