Oil fell as the fallout from the collapse of Silicon Valley Bank — the worst since the 2008 financial crisis — rippled across markets.
US authorities are rushing to strengthen confidence in the banking system and prevent contagion, while Goldman Sachs Group Inc. scrapped its call for a Federal Reserve interest-rate hike next week due to the turmoil. The dollar fell, providing a tailwind for commodities. US equity futures pared gains and European stocks declined, highlighting an aversion to risk.
The turbulence has added further volatility to oil, which has been whipsawed this year by concerns over America’s tightening monetary policy and optimism around China’s economic recovery. Many market watchers are still bullish on the longer term outlook, with Saudi Aramco forecasting consumption will probably hit a record of 102 million barrels a day by the end of 2023.
“Crude oil prices continue to ebb and flow with the general level of risk sentiment,” said Ole Hansen, head of commodities strategy at Saxo Bank. While the response to the SVB crisis will support commodities, “the risk of a US recession has strengthened on the back of these developments and with that in mind the short-term outlook points to continued range-bound trading” for oil.
Traders have been paying big premiums for bearish put options as the demise of SVB led some to hedge against the risk of an oil-price decline. The premium of puts over bullish calls rose to the highest since November last week.
- WTI for April delivery fell 2.2% to $75 a barrel at 9:35 a.m. in LondonIt rose as much as much as 1% earlier
- Brent for May was 2% lower at $81.15
Speculators last week bet on higher oil prices. Money managers boosted their net-long positions in Brent last week to the highest since mid-February, while another gauge is signaling the biggest bullish bias since May 2019.
Monthly reports from the Organization of the Petroleum Exporting Countries and the International Energy Agency this week will provide more clues on the state of the market and the outlook for supply and demand.