Oil production in Azerbaijan
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Oil prices fell sharply on Wednesday as traders worried that the escalating banking crisis would dampen global economic growth.
West Texas Intermediate Futures fell more than 5% to $67.61 a barrel, the lowest level since December 2021. Brent oilthe international benchmark decreased by 4% and amounted to 74.36 dollars per barrel.
“The oil market will remain in surplus for most of the first half of the year, but that should change unless we see a major policy mistake by the Fed that triggers a severe recession,” Ed said. Moya, Senior Market Analyst at Oanda. “WTI’s decline near the mid-$60s now depends on how much the macro picture deteriorates.”
A retest of October lows could increase downward pressure on WTI oil, he said, adding that energy stocks could struggle as demand weakens and a surplus is likely to persist in the short term.
“Longer-term views still support energy holdings in your portfolios, as many oil giants have solid balance sheets that support steady buybacks and dividends,” he added.
The decline came as global risk markets sold off after news that Credit Suisse’s biggest investor, the National Bank of Saudi Arabia, would not provide additional aid to the troubled bank. The news sent the bank’s US-listed shares down more than 20%. It also raised concerns about the state of the global banking system less than a week after two regional US banks failed.
The stress on smaller banks led Goldman Sachs to cut its forecast for US GDP growth.
“Small and medium-sized banks play an important role in the U.S. economy,” Goldman economists wrote. “Banks with less than $250 billion in assets account for approximately 50% of US commercial and industrial lending, 60% of residential real estate lending, 80% of commercial real estate lending and 45% of consumer lending.”
“US policymakers have taken aggressive steps to strengthen the financial system, but concerns about distress at some banks remain,” they added. “Continued pressure may cause small banks to become more conservative in lending to maintain liquidity as they need to meet depositor withdrawals, and tightening lending standards may weigh on aggregate demand.”
The Federal Reserve is scheduled to hold a policy meeting next week. This week, traders have estimated prices to rise by at least 25 basis points. However, CME Group’s FedWatch tool now shows a nearly 2-in-1 chance that rates will stay at current levels.
— CNBC’s Christopher Hayes contributed to this report.
Correction: Oil is headed for its worst day since July. The time frame was incorrectly specified in the previous title.