Oil futures: Brent slumps 4% amid banking contagion fears

15 Mar 2023

Quantum Commodity Intelligence - Crude oil futures Wednesday extended the week's sharp losses as the selloff continued, although prices rebounded from over-one-year lows late in the session amid extreme volatility.

May ICE Brent futures were trading at $74.22/b (1850 GMT) compared to the day's range of $71.67-$78.73/b and Tuesday's settle of $77.45/b, having fallen over 10% on the week.

At the same time, Apr23 NYMEX WTI was trading at $68.08/b versus the day's range of $65.65-$72.56/b and Tuesday's settle of $71.33/b, falling below $70/b for the first time since December 2021.

Brent prices also tumbled to around 15-month lows after the US economy was dealt a further blow when ratings agency Moody's downgraded the entire US banking sector, while fears of contagion across the banking sector further undermined confidence.

Moody's Investors Service is now rating the entire US banking system as negative, having been cut from a stable rating.

"We have changed to negative from stable our outlook on the US banking system to reflect the rapid deterioration in the operating environment following deposit runs at Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank (SNY) and the failures of SVB and SNY," Moody's said in a report.

Separately, S&P cut its rating for First Republic Bank to junk status. S&P said in a statement the California-based bank's credit rating had been reduced to BB+ from A-, and it remains on credit watch negative and further downgrades are possible.

Share prices have also slumped in several European banks this week, including Credit Suisse and Societe Generale, which are major lenders in commodities finance. US-listed shares in Credit Suisse crashed around 25% Wednesday to a fresh record low, reflecting concerns over the wider impact on the global banking sector.

"Financial markets went into crisis mode and oil came under selling pressure as a risky asset. In view of this, high volatility can also be expected in the coming days, with fundamental data likely to play only a subordinate role," said Carsten Fritsch of Commerzbank.


Oil prices initially steadied Wednesday on upbeat data from China, but the bounce proved short-lived.

Figures from the National Bureau of Statistics showed China's economic activity strengthened in the first two months of the year as retail sales improved by 3.5% from the same period last year, while Industrial output grew to 2.4% in the two-month period.

Meanwhile, data from the American Petroleum Institute released late Tuesday revealed another build in US commercial crude inventories of 1.15 million barrels last week, taking the 2023 total to around 56 million barrels.

API data also showed gasoline stocks fell by 4.6 million barrels, while distillate stocks dropped by 2.9 million barrels, offsetting the crude build.

EIA data released Wednesday showing a crude build of 1.16 million barrels was also largely ignored.

Meanwhile, the IEA has maintained its demand forecast for 2023, although it upped its forecast on Russian output.