Oil prices have fallen over $2 on Monday, and were down as much as $4 in early trading, as fears of a contagion spread following the sudden collapse of Silicon Valley bank on Friday.
By 10:20 a.m. EST on Monday, Brent crude had fallen 2.31% to $80.87, with WTI down 2.62% at $74.67.
The Dow was also plunged over 243 points early on Monday, clawing back some of those losses by 10:20 a.m., for a 70 point downswing.
Oil prices likely would have fallen even more had not Chinese demand data not provided a counterweight.
Fears of a pending financial crisis were sparked on Friday when the U.S. government seized the assets of Silicon Valley Bank (SVB)
SVB, the go-to lender for tech startups backed by venture capitalists, failed dramatically on Friday, with shares plunging 60% before the SEC halted trading. On Wednesday, the bank announced a massive capital raise, saying it would sell $2.25 billion in new shares to fix the balance sheet. That created a panic and a run on the bank, sending shares tanking by Friday, leading to an FDCI takeover.
On Sunday, Washington launched emergency measures to avoid the contagion spreading into a wider financial crisis. The Biden administration pledged that banks will bear the losses, not taxpayers.
"No losses will be — and this is an important point — no losses will be borne by the taxpayers; let me repeat that, no losses will be borne by the taxpayer," Biden said Monday in remarks at White House. "Instead the money will come from the fees that banks pay into the Deposit Insurance Fund."
Following the bank’s failure, Goldman Sachs has forecast that the Federal Reserve will now pause rate hikes during its meeting next week.
Others agree.
"We think the steps taken by the Fed, Treasury and (the Federal Deposit Insurance Corp) will decisively break the psychological 'doom loop' across the regional banking sector," Karl Schamotta, chief market strategist at Corpay in Toronto, told Reuters.
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By Charles Kennedy for Oilprice.com
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From the 1929 great depression to the 2008 subprime financial crisis and the 2014 oil price collapse, the underlying factors have always been related to weaknesses in the US economy and its banking system. The latest Silicon Valley Bank (SVB) collapse is no exception.
When an inauspicious circumstances in the aftermath of WW2 led to the US dollar becoming the reserve currency of the world and later the currency of the global oil trade, the world started to face global financial crisis, sanctions against countries, deficit financing in the US leading to unsustainable debts and the collapse of the Gold Standard and also manipulation of oil prices in the form of encouraging US shale oil producers to flood the global oil market thus causing a huge glut leading to the 2014 oil price collapse and now the SVB collapse after the US government seized its assets.
Fears of contagion precipitating another global financial crisis immediately spread to the global oil market causing prices to fall by $2.0 on Monday and to the Dow which plunged over 243 points early on Monday, eventually clawing back some of those losses for a 70 point downswing.
Oil prices likely would have fallen even more had not positive Chinese oil demand data came to the rescue.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert