Oil prices settled lower on Friday, reversing early gains of more than $1 a barrel as concerns about the banking sector led both benchmarks to reach their largest weekly declines in months. Brent crude futures settled by $1.73, or 2.3%, to $72.97 a barrel, while U.S. West Texas Intermediate crude fell $1.61, or 2.4%, at $66.74.
Significant Weekly Declines for Brent and WTI
At their session low, both benchmarks were down more than $3. Brent experienced a nearly 12% decrease weekly, marking its biggest weekly fall since December. WTI futures fell 13% since Friday's close, representing its largest drop since last April.
Oil Market Safety Concerns Amid Banking Sector Crisis
John Kilduff, Partner at Again Capital LLC, expressed that the fundamentals underlying the oil market are better than the current pricing suggests. Still, there is a concern that oil is a less safe investment than cash or gold. Oil prices followed equity markets lower, impacted by the banking sector crisis and worries about a potential recession.
Financial Stocks Drag Down Indexes After Bank Collapses
In afternoon trading, all three major indexes were sharply lower, with financial stocks experiencing the most significant decline among the S&P 500 sectors. This followed the collapse of Silicon Valley Bank (SVB) and Signature Bank (NASDAQ: SBNY) and troubles at Credit Suisse and First Republic Bank (NYSE: FRC).
Market Fragility Contributes to Price Pressure
Ole Hansen, head of a commodity strategy at Saxo Bank, attributed the price pressure to the "continued fragile state of the market." However, analysts still anticipate constrained global supply to support oil prices in the foreseeable future.
OPEC+ Expects Market Stabilization Despite Financial Drivers
OPEC+ members attributed this week's price weakness to financial factors rather than supply and demand imbalances, adding that they expect the market to stabilize. WTI's fall to less than $70 a barrel for the first time since December 2021 could prompt the U.S. government to refill its Strategic Petroleum Reserve, boosting demand.
China's Demand Recovery and OPEC+ Production Cuts Offer Support
Analysts also expect China's demand recovery to provide price support, with U.S. crude exports to China in March heading towards their highest in nearly two and a half years. In a meeting on Thursday, Saudi Arabia and Russia reaffirmed their commitment to OPEC+'s decision last October to cut production targets by two million barrels per day until the end of 2023.