© Reuters.
By Peter Nurse
Investing.com – Oil prices fell sharply on Monday on fears that a collapse in SVB Financial would have long-term repercussions for the US banking sector, potentially holding back economic activity going forward.
By 9:00 AM ET (1300 GMT), the futures contract was trading 4.9% lower at $72.87 per barrel, while it was down 4.5% to $79.03 per barrel.
US authorities rolled out emergency measures on Sunday to shore up confidence and prevent a runaway by the country's second-tier regional banks after last weekend's collapse of Silicon Valley Bank.
However, this has not proved successful so far on Monday, with a number of regional banks trading sharply lower premarkets.
Sentiment is already weak in the oil sector, with two benchmarks posting heavy losses last week on fears that further monetary tightening will push the US economy, the world's largest crude oil consumer, into recession later this year.
The Fed will hold an emergency meeting on Monday, where it is likely to discuss more support after the SVB collapse. This, coupled with Tuesday's US data, could determine the direction of the oil market over the coming days
Looking ahead, the overall negative sentiment has outweighed the sharp decline in the US dollar, which should generally support prices as it makes commodities cheaper for buyers using foreign currencies.
It's not all bad news as Aramco Chief Executive (TADAWUL:) Amin Nasser said over the weekend that the oil market will remain balanced in the short to medium term.
“If you consider China is opening up and sourcing jet fuel and very limited spare capacity, we're talking about 2 million barrels, so as I said we are very optimistic in the near to medium term and the market will remain in balance,” he said.
Moreover, the latest positioning data shows that speculators increased their net long position on ICE Brent by 12,291 lots during the last reporting week to 298,291 lots last Tuesday.
“This move was driven exclusively by new buying, not short-covering,” said analysts at ING, in a note.
Longer term, Reuters reported Monday that the Biden administration will approve a major drilling project in Alaska on Monday.
This has the potential to produce about 600 million barrels of oil equivalent over its lifetime, peaking at 180,000 barrels of oil per day, said ConocoPhillips (NYSE:) on its website.