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After losing between 6-7% on Wednesday, oil prices are taking a toll on energy equities, with European giants shedding 6-8% and American oil companies down 5-7%.
As the markets attempt to digest two bank failures in the U.S., a plunge in shares of Credit Suisse and plummeting bank stocks on two continents, fears mount that a banking collapse could lead to a sustained economic downturn and cap demand for oil.
"It is hard to look past Credit Suisse and the obvious crisis of confidence," Craig Erlam, senior market analyst at Oanda, told Reuters.
"We are no longer talking about a few regional U.S. banks. We are talking about a major European bank and the shock waves are reverberating through the entirety of financial markets today,” he said.
At 1.52 p.m. EST, Exxon (NYSE:XOM) was trading down 5.4%, with Chevron (NYSE:CVX) shedding nearly 5% and mid-caps such as Apache down 8.44%, followed by EOG Resources (-7%) and Occidental Petroleum (NYSE:OXY), down over 6%.
Across the Atlantic, equities plunged, with BP (NYSE:BP) down 7.6%, Shell (NYSE:SHEL) down over 7.3%, Italian Eni (NYSE:E) down over 6% and Spanish Repsol (OTCMKTS: REPYY) down over 7.7%. French TotalEnergies (NYSE:TTE) was down over 5.6%.
The oil price collapse comes on the heels of the Energy Information Administration’s (EIA) inventory data released earlier on Wednesday, showing a build in crude oil inventories last week, with inventories now 7% higher than the five-year average.
The oil price rout also comes despite the International Energy Agency’s (IEA) predictions on Wednesday that the oil market would swing into a supply deficit in the second half of this year amid an economic rebound in China. Those predictions, however, are largely unchanged from last month’s report and failed to act as a counterweight to bank collapses.
At 2:05 p.m. EST on Wednesday, oil prices were recouping some losses, with Brent crude clawing its way back to $73.47 per barrel, down 5.14% on the day, and WTI down 5.64%, at $67.31 per barrel.
By Tom Kool for Oilprice.com
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Tom majored in International Business at Amsterdam’s Higher School of Economics, he is Oilprice.com's Head of Operations
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There are growing concerns that failure of two US regional banks could spread to other banks around the world as happened today when shares of Credit Suisse plunged and lead to a banking collapse and another financial crisis. This will definitely dampen global demand for oil and possibly precipitate a collapse in oil prices.
On the other hand, this could be a mere hiccup from which global banking will recover quickly thus enabling oil demand and prices to recoup their losses.
This raises very serious questions as to why financial crises have always originated in the United States and spread worldwide. Could they be related to inherent structural weaknesses in the US economy and its banking system? Could the collapse of the two US regional banks be the result of extreme hiking of interest rates by the Federal Reserve, a case of ‘the cure being worse than the disease.’
From the 1929 great depression to the 2008 subprime financial crisis and the 2014 oil price collapse, the underlying factors have always been connected with the United States. The latest Silicon Valley Bank (SVB) collapse is no exception.
Isn’t it strange that since the dollar became the reserve currency of the world in the aftermath of WW2 and later the currency of the oil trade, the world started to face one financial crisis after another, sanctions became rampant and rising deficit financing became entrenched in the US leading to unsustainable debts and the collapse of the Gold Standard?
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert