Oil production in Azerbaijan
Vostok | Getty Images
Oil prices fell more than 7% Wednesday, as traders feared a brewing banking crisis could dent global economic growth.
West Texas Intermediate futures fell more than 7% to $66.24 per barrel. That would be WTI’s biggest one-day drop since July 12, 2022 — when it plunged 7.9%. Brent crude, the international benchmark, slid 6.6% to $72.30 per barrel.
“The oil market is going to be stuck in a surplus for most of the first half of the year, but that should change as long as we don’t see a major policy mistake by the Fed that triggers a severe recession,” said Ed Moya, senior market analyst at Oanda. “Now near the mid-$60s, WTI crude’s plunge is at the mercy of how much worse the macro picture gets.”
A retest of October’s lows could add increased downward pressure on WTI crude, he said, adding that energy stocks may struggle given the weakening demand outlook and surplus likely to persist in the short-term.
“Longer-term views however still support having energy in your portfolios as a lot of the oil giants have robust balance sheets that support continued buybacks and dividends,” he added.
The drop came as global risk markets sold off following news that Credit Suisse’s biggest investor, the Saudi National Bank, would not provide more assistance for the embattled bank. The news led to a more than 20% drop in the bank’s U.S.-listed shares. It also raised concern over the state of the global banking system less than a week after two U.S. regional banks failed.
The stress in smaller banks led Goldman Sachs to cut its U.S. GDP growth forecast.
“Small and medium-sized banks play an important role in the US economy,” Goldman economists wrote. “Banks with less than $250bn in assets account for roughly 50% of US commercial and industrial lending, 60% of residential real estate lending, 80% of commercial real estate lending, and 45% of consumer lending.”
“US policymakers have taken aggressive steps to shore up the financial system,…
Read the full article here
