Oil Markets Headed For One Of Worst Weeks Since Pandemic Amid Festering Banking Crisis

Crude prices are headed for one of their worst weekly losses since the coronavirus pandemic, as a festering crisis in US banking creates fears about liquidity in the financial system to fund oil trades

WASHINGTON (UrduPoint News / Sputnik - 17th March, 2023) Crude prices are headed for one of their worst weekly losses since the coronavirus pandemic, as a festering crisis in US banking creates fears about liquidity in the financial system to fund oil trades.

The US West Texas Intermediate and the London Brent crude benchmarks both showed double-digit losses for the week as trading entered late afternoon hours on Friday. The two benchmarks lost as much as 20% back-to-back during the first two weeks of April 2020 during the height of the demand destruction brought on by the COVID-19 measures.

The oil markets' slump this time, however, has little to do with supply-demand but is revolving more around the crisis of confidence in banks, which provide the liquidity for trading in crude and all other commodities. Persistent interest rate hikes by the Federal Reserve have also led to fears that the US economy could end up in a deep recession.

"Crude prices remain heavy as banking turmoil won't be going away anytime soon and over fears that the Fed's rate hiking cycle is starting to take down the economy," Ed Moya, analyst at online trading platform OANDA, said.

New York-traded West Texas Intermediate was down $3, or 4.4%, to $65.35 per barrel by 11:30 am ET (15:30 GMT). For the week, the US crude benchmark was down more than 15%. The last time it lost more than that in a week was during the week to April 10, when it fell almost 20%.

The London-traded Brent was down $3.20, or 4.3%, to $71.50 - down 13% on the week.

Moya said energy traders are not sure what could be a catalyst to raise oil prices given all the doom and gloom happening with short-term crude demand outlooks.

"It seems that the oil bump that we got earlier in the month from China's reopening was premature," he said. "Clearly China's recovery still needs more support. The Fed's forecasts will closely be watched as that will signal if we are at a greater risk of a policy mistake. For now oil will remain heavy as traders try to figure out what type of recession policymakers will trigger in the United States."

The US banking crisis began after two mid-sized lenders - Silicon Valley Bank (SVB) and Signature Bank - were rescued by the Federal Deposit Insurance Corp last week as depositors withheld billions of dollars after fears spread about their solvency. SVB eventually filed for bankruptcy protection. A third bank, First Republic, is also in trouble despite receiving a $30 billion cash infusion from a consortium of banks.

The banking crisis has spread to Europe, with Credit Suisse, one of the preeminent names in global investment banking, having to seek help from Switzerland's central bank.