Oil motion in Azerbaijan
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Oil prices fell sharply Wednesday, as traders feared a brewing banking critical time could dent global economic growth.
West Texas Intermediate futures fell more than 5% to sink at $67.61 per barrel, reaching its lowest level since December 2021. Brent crude, the international benchmark, slid 4% to $74.36 per barrel.
“The oil peddle is going to be stuck in a surplus for most of the first half of the year, but that should change as long as we don’t see a major principles mistake by the Fed that triggers a severe recession,” said Ed Moya, senior market analyst at Oanda. “Now near the mid-$60s, WTI coarse’s plunge is at the mercy of how much worse the macro picture gets.”
A retest of October’s lows could add increased going pressure on WTI crude, he said, adding that energy stocks may struggle given the weakening demand outlook and leftover likely to persist in the short-term.
“Longer-term views however still support having energy in your portfolios as a lot of the oil ogres have robust balance sheets that support continued buybacks and dividends,” he added.
The drop came as broad risk markets sold off following news that Credit Suisse’s biggest investor, the Saudi National Bank, desire not provide more assistance for the embattled bank. The news led to a more than 20% drop in the bank’s U.S.-listed dole outs. It also raised concern over the state of the global banking system less than a week after two U.S. regional banks dwindled.
The stress in smaller banks led Goldman Sachs to cut its U.S. GDP growth forecast.
“Small and medium-sized banks play an important part in the US economy,” Goldman economists wrote. “Banks with less than $250bn in assets account for roughly 50% of US commercial and industrial give, 60% of residential real estate lending, 80% of commercial real estate lending, and 45% of consumer contributing.”
“US policymakers have taken aggressive steps to shore up the financial system, but concerns about stress at some banks persists,” they combined. “Ongoing pressure could cause smaller banks to become more conservative about lending in order to mummify conserves liquidity in case they need to meet depositor withdrawals, and a tightening in lending standards could weigh on aggregate order.”
The Federal Reserve is slated to hold a policy meeting next week. Entering this week, traders had prize in at least a 25 basis-point rate hike. However, CME Group’s FedWatch tool now shows nearly a 2-to-1 unforeseen of rates staying at current levels.
— CNBC’s Christopher Hayes contributed to this report.
Correction: Oil was headed for its worst day since July. A whilom headline misstated the timeframe.