By Adedapo Adesanya
Oil prices fell over 2 per cent in volatile trading on Monday as the collapse of banks in the United States raised fears of a fresh financial crisis.
Brent crude futures settled lower by $2.01 or 2.4 per cent to $80.77 per barrel, as the US West Texas Intermediate crude futures (WTI) dropped $1.88 or 2.5 per cent to $74.80 per barrel.
The failure of Silicon Valley Bank and Signature Bank over the weekend sent jitters across the market, creating fears that the ripple effect, blamed on the Federal Reserve’s aggressive rate hikes, could spread to other banks.
With the US Federal Reserve poised to continue raising rates, investors worry that the financial system has not seen the last of the development.
US regulatory authorities, including the Federal Reserve, US Treasury, and Federal Deposit Insurance Corp (FDIC), launched emergency measures on Sunday to shore up confidence in the banking system after the failure of Silicon Valley Bank led to a sell-off in US assets at the end of last week and state regulators closed New York-based Signature Bank on Sunday.
Analysts were actually surprised to see oil prices plunging, considering the fact that the US Federal Reserve will have a harder time raising interest rates aggressively, and that should cause weakness in the Dollar.
The Dollar index, which measures the greenback against six other currencies, fell nearly 1 per cent as short-dated Treasury yields tumbled.
A weaker greenback is supposed to make oil cheaper for holders of other currencies and typically supports oil prices.
Amid this, Goldman Sachs analysts said they no longer expect the US central bank to raise rates by 25 basis points at its next policy meeting on March 21-22.
Recovery in Chinese demand provided support as highlighted in comments on Sunday from Saudi Aramco CEO Amin Nasser.
“If you considered China opening up and a pick up in jet fuels and very limited spare capacity, we are talking 2 million barrels, so as I said, we are cautiously optimistic in short to midterm, and the market will remain tightly balanced,” he said.
The comments come in the wake of the announcement that Saudi Arabia and Iran had agreed to restore diplomatic relations in a China-brokered deal, potentially paving the way to the revival of a nuclear deal that would allow exports of currently-sanctioned Iranian crude.