Oil prices hit lowest levels since 2021 on banking fears

Oil prices dropped to their lowest levels in 15 months on Monday before paring losses as the market digests concerns that risks in the global banking sector could spark a recession that would sap fuel demand. In volatile trading, Brent crude futures for May were down 14 cents to $72.83 a barrel. The U.S. West Texas Intermediate crude contract for April was down 28 cents at $66.46 before its expiry on Tuesday. The more actively traded May futures were down 21 cents at $66.72 a barrel. Brent and WTI earlier fell by about $3, hitting lows last registered in December 2021, with WTI sinking below $65 a barrel before moving briefly back into positive territory. Both benchmarks shed more than 10% of their value last week as the banking crisis deepened.

The slide in oil occurred despite an historic deal  in which UBS, Switzerland’s largest bank, agreed to buy Credit Suisse in an attempt to rescue the country’s second-biggest bank. After the deal was announced, the U.S. Federal Reserve, European Central Bank and other major central banks pledged to enhance market liquidity and support other banks. “There’s a lot of fear-based movement (in oil prices),” Price Futures Group analyst Phil Flynn said. “We’re not moving at all on supply and demand fundamentals, we’re just moving on the banking concerns.” On Monday, the S&P 500 and the Dow Jones gained, helping lift oil prices off the day’s lows. Stock traders have raised bets of the Fed likely hitting a pause on rate hikes on Wednesday to ensure financial stability as bank sector troubles threaten to snowball.

Traders and economists remain split on whether the Fed will raise its benchmark policy rate on Wednesday. Some executives are calling on the central bank to pause its monetary policy tightening for now but be ready to resume raising rates later. “Volatility is likely to linger this week, with broader financial market concerns likely to remain at the forefront,” ING Bank analysts said in a note, adding the looming Fed decision adds to uncertainty in markets. Further out, a ministerial committee of OPEC and producer allies including Russia, together known as OPEC+, is set for a meeting April 3. The group agreed in October to cut oil production targets by 2 million barrels per day until the end of 2023.