Worst weeks ahead for energy markets amid crisis in banking sector

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Oil prices are expected to head to one of their worst weekly losses since the pandemic as both WTI and Brent crude benchmarks recorded double-digit losses for the week in today's late afternoon trading hours and this is owed to the loss of confidence in the banking sector.

Prospects for energy markets are expected to be the worst since the start of the Covid pandemic in April 2020 - a time during which the two benchmarks lost as much as 20% due to explosive demand.

However, this time, the slump is owed to the crisis of confidence in banks sparking fears about the possibility they may face liquidity shortfalls in mediating trade in crude.

Hikes in interest rates by the Federal Reserve have also fueled concerns that the US economy may end up in an irreversible cycle of economic downturn. 

"Crude prices remain heavy as banking turmoil won’t be going away anytime soon and over fears that the Fed’s rate hiking cycle is starting to take down the economy," Ed Moya, an analyst at online trading platform OANDA, told Sputnik.

Read more: EU banks under threat of systemic risk after SVB collapse in US

At 11:20 am  ET (15:30 GMT), WTI was down $3, or 4.4%, to $65.35 per barrel. Over the week, the benchmark was down more than 15%. As for Brent, the benchmark was down $3.20, or 4.3%, to $71.50 - down 13% on the week.

Moya noted that energy traders are uncertain about what may be a catalyst to increase crude prices given recent global events and their impact on prospects for short-term crude demand. 

"It seems that the oil bump that we got earlier in the month from China’s reopening was premature," he said. "Clearly China’s recovery still needs more support. The Fed’s forecasts will closely be watched as that will signal if we are at a greater risk of a policy mistake. For now, oil will remain heavy as traders try to figure out what type of recession policymakers will trigger in the US."

The crisis began with two mid-size lenders - SVB and Signature Bank - being taken over by Californian regulators. SVB is considered the second largest bank failure in history, whereas Signature Bank is viewed as the third.

Another bank, First Republic, also found itself in hot water despite it received a $30 billion cash infusion from a consortium of banks.

The crisis has spread to other banks in Europe, including Credit Suisse, which announced yesterday it was taking a $53.7 billion loan from the Swiss central bank in a bid to "pre-emptively strengthen its liquidity" a day after stock prices fell by a huge margin as it struggles to nip in the bud a confidence crisis.

Read more: SVB crash a lesson and reminder for Asia to distrust US financing