As fears over the banking system weigh on markets worldwide, the price of oil has come under significant pressure in recent days with WTI crude oil, the U.S. benchmark, falling below $67 on Wednesday, its lowest price since November 2021.
On Wednesday, WTI was off nearly 7% to trade as low as $66.47 a barrel. As recently as March 6, WTI traded hands north of $80. Brent crude oil, the international benchmark, traded as low as $72.60 a barrel on Wednesday.
This week's collapse in oil prices comes as the latest data on oil stockpiles in the U.S. show a steady build in inventories amid what Capital Economics' chief commodities economist Caroline Bain called "subdued domestic demand" in a note to clients on Wednesday.
Data from the American Petroleum Institute out Tuesday showed inventories rose for the 10th-straight week for the week ending March 10, while the Energy Information Administration's weekly petroleum report out Wednesday showed a build in crude oil inventories last week, noting inventories are running 7% higher than the five year average.
Crude oil inventories have been steadily rising this year amid a "subdued domestic demand" environment. (Source: Capital Economics)Bain also pointed to the Biden administration's decision on Monday to approve a massive drilling project in Alaska as a sign more supply could be coming onto a market already not facing a shortage of oil.
"The approval was for a pared-back project and it will still face legal challenges, but it is significant because President Biden has broken his campaign promise to ban all drilling on federal lands," Bain wrote. "When fully operational at 180,000 [barrels per day], it would mean a 40% rise in Alaska’s oil output to around 620,000 bpd."
U.S. President Joe Biden makes a statement about gasoline prices and oil company profits in the Roosevelt Room as U.S. Treasury Secretary Janet Yellen listens at the White House in Washington, U.S., October 31, 2022. REUTERS/Leah MillisThe latest drop in oil also has some echoes of the panic seen in oil markets in the spring of 2020.
Oil was sold aggressively that spring as a global recession induced by the pandemic muddied the demand picture. But the rapid drop in the price of oil ultimately created real-world storage mismatches that resulted in WTI falling to negative $40 a barrel as traders worked to avoid taking forced delivery of oil they could not store.
A surge in the dollar also pressured oil prices Wednesday. The dollar had seen fairly muted trading during the initial fallout from Silicon Valley Bank's failure, but was strengthening broadly on Wednesday as Credit Suisse's latest struggles trigger growing fears about the global fallout from recent U.S. bank failures.
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