Oil prices extended their losses on Wednesday as uncertainty over Swiss bank Credit Suisse triggered a broad sell-off in global financial markets, offsetting hopes of a fuel demand recovery in China.
After rising more than 1 per cent in the morning, Brent, the benchmark for two thirds of the world’s oil, was trading 6.74 per cent lower at $72.23 a barrel as of 9.23pm UAE time.
West Texas Intermediate, the gauge that tracks US crude, was down 7.14 per cent at $66.24 a barrel.
On Tuesday, Brent shed 4.11 per cent to settle at a three-month low of $77.45 a barrel. WTI was down 4.64 per cent at $71.33.
Credit Suisse lost more than a quarter of its value on Wednesday after its largest investor said it could not provide more financial assistance to the Swiss bank.
The drop in its shares triggered a broader sell-off in European banking stocks, with the main indexes in the US also opening lower on Wednesday.
Global markets were already facing significant turmoil after the collapse of California-based Silicon Valley Bank.
“Traders are worried if Credit Suisse will be able to survive given that its stock has fallen below the two-handle level today, and if it doesn’t, how big the crisis is going to be,” said Naeem Aslam, chief investment officer at Zaye Capital Markets.
On Friday, US regulators closed SVB, the 16th largest bank in the country, after depositors hurried to withdraw money amid concerns about the bank’s health.
It was the second biggest retail bank failure in US history, after the 2008 collapse of Washington Mutual due to the global financial crisis.
Oil prices were under pressure as investors panicked in almost all global asset classes and fled to safer assets such as gold and silver, Kamco Invest Research said in a report on Wednesday.
“Investors remained concerned about the possibility of a fresh financial crisis amid the prevailing uncertainty in the market despite assurances from the US government, as well as support for the banking sector,” it said.
Opec on Tuesday raised its forecast for Chinese oil demand growth in 2023 on the relaxation of Covid-19 measures, but stuck to its global demand estimate of 2.3 million barrels per day, citing a potential economic slowdown in Europe and the Americas.
The oil producers' group, which expects China’s crude consumption to rise by about 700,000 bpd this year, said the world economy had continued to face challenges ranging from elevated inflation to the Ukraine war.
“Overall, oil demand continues to be driven by the ongoing recovery in the travel and transportation sectors,” it said.
China, the world’s second-largest economy and top crude importer, reopened its borders in January after adhering to a strict zero-Covid policy for about three years.
The country is aiming for gross domestic product growth of 5 per cent in 2023, after it grew by 3 per cent in 2022.
The US consumer price index, a key inflation metric, rose by 0.4 per cent in February from January, the Labour Department reported on Tuesday. On an annual basis, prices increased by 6 per cent, which was down from 6.4 per cent in January.
Core inflation, which excludes food and energy prices, grew by 0.5 per cent from January and increased by 5.5 per cent on the year.
“A mostly in-line inflation report sealed the deal for at least one more [US Federal Reserve] rate hike,” said Edward Moya, a senior market analyst at Oanda.
“The Fed’s tightening work is not done just yet and the chances are growing that they will send the economy into a mild recession, and as risks remain that it could be a severe one,” he said.
Meanwhile, US crude stocks recorded a small increase of 1.1 million barrels last week, according to the American Petroleum Institute.
The US Energy Information Administration's weekly crude oil and petroleum inventories report will be released later today.