Oil Posts Worst Weekly Loss Since Early 2020 Due To Bank Fears

Oil ended a miserable week of trading performance on Friday. File Image / Pixabay

Oil ended a miserable week of trading performance on Friday, finishing the day in declines and down a massive 13 percent on the week as earlier bank failures convinced skittish traders that demand is in serious jeopardy – despite fundamentals remaining steady.

The plunge also occurred despite fears of a global banking collapse being vastly oversold by the media, and despite support measures from the European Central Bank and U.S. lenders being enacted.

John Kilduff, founding partner at Again Capital, said, "The underlying fundamentals aren't as terrible as what is being priced in here, but there is concern the oil is not as safe a place as cash or gold."

Members of the Organization of the Petroleum Exporting Countries (OPEC) were equally bewildered by Friday's trading, pointing out that this week's price weakness was due to financial drivers rather than supply and demand imbalance; and they added that they expected the market to stabilise.

Brent on Friday settled down by $1.73 to $72.97 per barrel and incurred a near 12 percent loss for the week (its biggest weekly fall since December); West Texas Intermediate fell $1.61 at $66.74, incurring a 13 percent loss for the week, its biggest weekly drop since April of 2020.

Bloomberg noted that oil prices this week dropped so low "that 43,000 options contracts totalling more than 40 million barrels of crude came into the money, resulting in a tidy payday for some while at the same time further deepening the downturn."

Rebecca Babin, senior energy trader at CIBC Private Wealth, remarked, "Crude action this week reminded many of how quickly the commodity can be decimated by macro economic events."

As for events that are sure to influence trading in the days to come, the U.S. Federal Reserve will decide next week whether to raise rates again, which analysts fear will further harm demand if the initiative leads to recession; also OPEC and its allies will convene April 3 to revisit the group's production policy.

Ed Moya, senior market analyst at Oanda, told media that while "The oil market is going to be stuck in a surplus for most of the first half of the year...that should change, as long as we don't see a major policy mistake by the Fed that triggers a severe recession."

Finally, Alex Kimani, investor and finance writer for Oilprice.com, said of the so-called banking crisis, "the fact that shares of Credit Suisse and those of European banks have recovered swiftly suggests that the markets do not view the banking crisis as being systemic or likely to unravel on a wider scale."