Oil prices fall 2% in choppy trade as banking fears rattle markets

OIL prices fell over 2 per cent in volatile trading on Monday as the collapse of Silicon Valley Bank roiled equities markets and raised fears of a fresh financial crisis, but a recovery in Chinese demand provided support.

Brent crude futures settled down US$2.01, or 2.4 per cent, to US$80.77. The global benchmark earlier fell to a session low of US$78.34, its lowest price since early January.

US West Texas Intermediate crude futures (WTI) dropped US$1.88, or 2.5 per cent, to US$74.80 a barrel. WTI earlier declined to US$72.30 a barrel, its lowest price since December.

US authorities launched emergency measures on Sunday to shore up confidence in the banking system after fears of contagion from the failure of Silicon Valley Bank led to a sell-off in US assets at the end of last week and state regulators closed New York-based Signature Bank on Sunday.

US stocks indexes also traded choppily as investors weighed a possible pause in interest rate hikes by the Federal Reserve in March.

The sudden shutdown of SVB Financial triggered concerns about risks to other banks resulting from the Fed’s sharp rate hikes over the last year, but has also spurred speculation about whether the central bank could slow the pace of its monetary tightening.

“It was kind of surprising today to see the big drop in oil considering the fact that the Fed more than likely will have a harder time raising interest rates aggressively and that should cause weakness in the dollar,” Price Futures Group analyst Phil Flynn said.

The dollar index, which measures the greenback against six other currencies, fell nearly 1 per cent as short-dated Treasury yields tumbled. A weaker greenback makes oil cheaper for holders of other currencies and typically supports oil prices.

Worries about further Fed monetary tightening have been exacerbated by high US crude oil inventories.

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