Oil Prices Plunge 5% as Banking Fears Mount

By Adedapo Adesanya

Oil prices plunged 5 per cent a barrel on Wednesday to their lowest in more than a year as unease over a shaking global banking system, with Brent crude down $3.76 or 4.9 per cent to $73.69 per barrel, and US West Texas Intermediate crude (WTI) down by $3.72 or 5.2 per cent at $67.61 per barrel.

The market has been jittery in the last week, but any sign of stability faded when a new crisis hit Switzerland lender, Credit Suisse, spooking investors across all the markets, including the oil market.

Credit Suisse’s largest investor said it could not provide the Swiss bank with more financial assistance.

The investor, Saudi National Bank (SNB), which holds 9.88 per cent of the bank, said it would not buy more shares on regulatory grounds. This is as the lender is battling to recover from a string of scandals that have undermined the confidence of investors and clients.

Both benchmarks shed more than 4 per cent in previous days, pressured by fears that the collapse of Silicon Valley Bank (SVB) last week and other US bank failures could spark a financial crisis that would weigh on fuel demand.

Prices also moved lower, although the US Energy Information Administration (EIA) reported an inventory build of 1.6 million barrels for the week of March 10 compared with an inventory decline of 1.7 million barrels estimated for the previous week and the first decline in crude oil inventories since the start of the year.

Also, pressure came as the US Dollar also strengthened against a basket of currencies, making it more expensive for holders of those currencies to purchase crude.

The International Energy Agency’s (IEA) predicted on Wednesday that the oil market would swing into a supply deficit in the second half of this year amid an economic rebound in China. Those predictions, however, are largely unchanged from last month’s report and failed to act as a counterweight to bank collapses.

A day earlier, the Organisation of the Petroleum Exporting Countries (OPEC) said it expected demand for crude from China to rise by 710,000 barrels daily this year. This was an update from a forecast demand increase of 590,000 barrels per day for China in OPEC’s last month’s report.

However, OPEC also cautioned against too much optimism about oil demand: “The rapid rises in interest rates and global debt levels could cause significant negative spill-over effects and may negatively impact the global growth dynamic.”