Oil prices have taken a hit after Brent futures fell by $3.32, or 4.1%, to settle at $77.45 a barrel, while U.S. West Texas Intermediate (WTI) crude fell by $3.47, or 4.6%, to settle at $71.33. These are the lowest closes for both benchmarks since Dec. 9 and their biggest one-day percentage declines since early January. In addition, both contracts fell into technically oversold territory for the first time in weeks. This drop was a result of the U.S. inflation report and recent bank failures.
The U.S. inflation report revealed a solid increase in February’s consumer prices as Americans faced persistently higher costs for rents and food, posing a dilemma for the U.S. Federal Reserve. Their fight against inflation has been complicated by the collapse of two regional banks, which has triggered fears of a financial crisis that could reduce future oil demand.
Phil Flynn, an analyst at Price Futures Group, suggests that the market is anticipating a recession in the future, or it could be that one or more funds had to raise cash and reduce the risk on their books because they are concerned about liquidity after the bank failures. However, he has not heard of any fund in trouble.
The recent bank failures have sparked financial fears as investors are concerned about liquidity and the possibility of another financial crisis. The Federal Reserve has been closely monitoring the situation and has taken steps to ensure the stability of the banking system.
Furthermore, the COVID-19 pandemic has also had a significant impact on the oil industry. The decrease in demand for oil due to travel restrictions and lockdowns has led to an oversupply of oil, causing prices to decline. While the vaccination rollouts have raised hopes for a return to normalcy, the impact of the pandemic on the oil industry is likely to be felt for some time.
In conclusion, the decline in oil prices is a result of the U.S. inflation report and recent bank failures that have sparked fears of a financial crisis. The Federal Reserve is closely monitoring the situation, and it remains to be seen how it will impact the oil industry in the long run.