Oil falls to lowest since December 2021 as banking crisis grips markets

Oil Production in Azerbaijan

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Oil prices fell sharply on Wednesday as traders worried that a brewing banking crisis could dent global economic growth.

West Texas Intermediate Futures fell more than 5% to settle at $67.61 a barrel, the lowest level since December 2021. Brent crude oilthe international benchmark, fell 4 percent to $74.36 a barrel.

“The oil market will be in oversupply for most of the first half of this year, but that will change as long as we don’t see a major Fed policy mistake triggering a deep recession,” said Eder, senior market analyst at Oanda Moya. “It’s near the mid-$60s now, and WTI’s slump depends on how bad the macro picture gets.”

A retest of October lows could add to downward pressure on WTI crude, he said, adding that energy stocks could struggle given the weak demand outlook and a supply glut that is likely to persist in the near term.

“However, the long-term view still favors having dynamism in your portfolio, as many oil majors have strong balance sheets that support continued buybacks and dividends,” he added.

Global risk markets sold off after news that Credit Suisse’s biggest investor, the National Bank of Saudi Arabia, would not provide more aid to the struggling lender. The news sent the bank’s U.S.-listed shares down more than 20%. It also raised concerns about the state of the global banking system less than a week after the collapse of two regional U.S. banks.

The pressure on small banks led Goldman Sachs to cut its US GDP growth forecast.

“Small and midsize banks play an important role in the U.S. economy,” Goldman economists wrote. “Banks with less than $250 billion in assets account for about 50 percent of U.S. commercial and industrial loans, 60 percent of residential real estate loans, 80 percent of commercial real estate loans, and 45 percent of consumer loans.”

“U.S. policymakers have taken aggressive steps to shore up the financial system, but concerns about stress at some banks remain,” they added. “Continued pressure could lead smaller banks to become more conservative in lending to maintain liquidity as they need to meet depositor withdrawals, while tightening lending standards could weigh on aggregate demand.”

The Fed is scheduled to hold a policy meeting next week. Going into this week, traders had priced in at least a 25 basis point hike.However, CME Group’s fed watch The tool now shows a near 2-to-1 chance of rates remaining at current levels.

— CNBC’s Christopher Hayes contributed to this report.

Correction: Oil prices headed for worst day since July. The previous headline incorrectly stated the time frame.

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