Oil posted its worst weekly loss since the early months of the coronavirus pandemic as banking turmoil poisoned investor sentiment.
West Texas Intermediate has lost nearly 13% this week, the biggest drop in nearly three years. The failure of Silicon Valley Bank and problems at Credit Suisse Group AG sent investors out of risk assets, with oil options accelerating the sell-off.
“This week’s crude action reminded many how quickly the commodity can be decimated by macroeconomic events,” said Rebecca Babin, senior energy trader at CIBC Private Wealth. “The commodity broke a significant level of support as the market tries to quantify the economic ramifications of the banking turmoil.”
Traders were waiting for a catalyst to break prices out of the relatively narrow trading range that has dominated the market, as expectations of a pick-up in Chinese demand compete with a weaker economic outlook in the West.
This week’s banking crisis provided the spark and sent oil prices to a 15-month low. That crash led to another: Prices were so low that 43,000 options contracts totaling more than 40 million barrels of crude oil “went in the money,” resulting in a payday tidy for some while at the same time deepening the recession.
Prices:
- WTI for April delivery was down $1.61 at $66.74 a barrel
- Brent for May fell $1.73 to $72.97
The next stage for oil may depend on the decisions of the US Federal Reserve and the Organization of the Petroleum Exporting Countries. The Fed will decide next week whether to raise rates again, a move that has implications for oil demand. Meanwhile, OPEC and its allies will meet on April 3 to review the group’s production policy. Several technical measures suggest that the recent decline has pushed the commodity into oversold territory.
(with the assistance of Julia Fanzeres)
