Oil tumbles to lowest level since December 2021 as banking crisis routs markets

Oil tumbles to lowest level since December 2021 as banking crisis routs markets

Oil production in Azerbaijan

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Oil prices fell sharply on Wednesday as traders feared a looming banking crisis could hurt global economic growth.

West Texas Middle School Futures fell more than 5% to $67.61 a barrel, the lowest since December 2021. Brent crude oilthe international benchmark, slipped 4% to $74.36 a barrel.

“The oil market will be stuck in surplus for most of the first half, but that should change unless we 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 depends on how much worse the macro picture gets.”

A retest of October’s lows could add downward pressure on WTI crude, he said, adding that energy stocks could struggle given the weakening demand outlook and near-term surplus likely to persist.

“However, the long-term prospects still support having energy in your portfolios, as many of the oil giants have robust balance sheets that support continued buybacks and dividends,” he added.

The decline came as global risk markets sold off after it was revealed that Credit Suisse’s biggest investor, the National Bank of Saudi Arabia, would not provide further aid to the troubled bank. The news sent the bank’s US-listed shares down more than 20%. Less than a week after the collapse of two US regional banks, there was also concern about the state of the global banking system.

Stress at smaller banks prompted Goldman Sachs to lower its US GDP growth forecast.

“Small and mid-sized banks play an important role in the US economy,” Goldman economists wrote. “Banks with assets under $250 billion account for approximately 50% of US commercial and industrial lending, 60% of residential real estate lending, 80% of commercial real estate lending, and 45% of consumer lending.”

“Policymakers in the US have taken aggressive steps to shore up the financial system, but concerns about stress at some banks remain,” they added. “Continued pressure could lead smaller banks to become more conservative in lending to conserve liquidity if they need to meet depositor withdrawals, and tightening lending standards could weigh on aggregate demand.”

The Federal Reserve is scheduled to hold a policy meeting next week. Earlier this week, traders had priced in a rate hike of at least 25 basis points. However, CME Group’s FedWatch tool is now showing an almost 2-in-1 chance that rates will remain at current levels.

— CNBC’s Christopher Hayes contributed to this report.

Correction: Oil headed for its worst day since July. A previous headline misrepresented the time frame.