Oil futures: Prices recover from lows amid SVB banking fallout

13 Mar 2023

Quantum Commodity Intelligence - Crude oil futures Monday were down amid volatile trading conditions but off from the day’s  lows, as initial optimism on Chinese demand gave way to concerns over the US banking system and wider economy.

May ICE Brent futures were trading at $80.88/b (1825 GMT), compared to the day's wide range of $78.34-$83.48/b and Friday's settle of $82.78/b.

At the same time, Apr23 NYMEX WTI was trading $74.90/b versus the day's wide range of $72.30-$77.47/b and Friday's settle of $76.68/b.

Oil markets were already shaken last week after comments from senior Federal Reserve officials on further rate hikes while facing further uncertainty Monday from the fallout over the beleaguered Silicon Valley Bank.

Sky News reported Monday that HSBC had bought the embattled UK arm of Silicon Valley Bank (SVB UK), but the fate of the US parent company remains uncertain.

"The market seems focused on a somewhat positive demand picture for oil, while more recently, expectations for Fed tightening have also fallen," said Warren Patterson, head of ING's commodity research, noting continued weakness in equities given concerns over SVB and the broader banking sector.

The US Treasury said over the weekend all deposits in SVB are safe, although officials are believed to be looking for a buyer for the 16th largest US bank.

On Sunday, the Fed implemented an emergency lending facility (the Bank Term Funding Program or BTFP) to backstop banks and secure access to funds for depositors.

Regulators on also took control of Signature Bank in what officials said was a move to protect depositors and the stability of the financial system.

“The aim will be to try to limit contagion to other banks and prevent banks from conducting fire sales of Treasury bonds and other financial instruments to meet deposit outflows,” said ING. 

The US banking crisis overshadowed the latest exchange data which revealed net long positions on ICE Brent crude reached an 18-month high last week on hopes a swift economic recovery in China will outweigh inflationary headwinds in Europe and the US.

Money managers increased long Brent crude positions by 11.8 million barrels to 319.8 million barrels as of 7 March, while short positions were flat at around 28 million barrels.