Oil Maintains Its Downward Trajectory In Wake Of SVB Fallout

Still, analysts say the Monday plunge wasn't justified: File Image/Pixabay

Crude trading on Monday kicked off the week the same way it ended last week, with traders unable to control their jitters about the prospect of rising bank interest rates leading to a recession and ruining demand recovery – as well as fears of contagion from the failure of Silicon Valley Bank – and causing a plummet of over 2 percent.

Brent settled down $2.01, or 2.4 percent, to $80.77 per barrel, while West Texas Intermediate dropped $1.88, or 2.5 percent, to $74.80 per barrel.

The sudden shutdown of SVB stoked concerns about risks to other banks as a result of the U.S. Federal Reserve’s rate hikes throughout 2022.

However, Phil Flynn, senior market analyst at Price Futures Group Inc., said, "It was kind of surprising today to see the big drop in oil considering the fact that the Fed more than likely will have a harder time raising interest rates aggressively and that should cause weakness in the dollar."

Ed Moya, senior market analyst at Oanda, shared that sentiment; he said, “Energy traders were not expecting the collapse of the 16th-largest lender in America to trigger a major risk-aversion wave that would send Brent crude below the $80 a barrel level.

“Oil’s rollercoaster ride won’t be over anytime soon as Tuesday’s inflation report could upend the rally hitting treasuries.”

For many observers, though, the long-term outlook remains bullish, sustained by developments such as Saudi Aramco forecasting that consumption will probably hit a record of 102 million barrels per day (bpd) by the end of 2023.

For his part, Javier Blas, energy and commodities analyst for Bloomberg, revealed his discomfort in the current crude market by stating, “The oil industry believes it is underinvesting in future production capacity, creating the risk of future shortages and higher prices; yet, long-dated oil prices keep falling, sitting now at $65 a barrel and suggesting the market expects spending would be more than enough to avoid a gap.”

He went on to remark that “Spot oil prices will continue to fluctuate in the next few months, pushed up and down by concerns about a hard or soft landing for the U.S. economy and hopes for strong reopening of China; but long-dated oil prices are poised to rise.”