After falling sharply for two consecutive days, international crude oil futures fell further on Wednesday.
During the European stock market on Wednesday, international crude oil, which had risen 1.7% in the Asian market, wiped out all gains during the day and turned negative, and then accelerated its downward trend. During European stock trading, U.S. WTI crude oil fell below $70 for the first time since 2021. At noon on U.S. stocks, U.S. oil fell to $65.65, a new intraday low since the end of November 2021, and fell nearly 8% during the day. Brent Crude oil once fell to $71.67, a new intraday low since December 2021, and fell about 7.5% on the day.
Finally, crude oil futures ended lower for the third consecutive day and the sixth day in the last seven trading days. WTI April crude oil futures closed down 5.22%, closing down more than 5% for the first time since January 4, at $67.61 per barrel. The front-month contract closed below $70 for the first time since December 2021. Brent crude oil futures for May closed down 4.85% at US$73.69 per barrel, hitting a new closing low since December 2021, and both U.S. Oil and US Oil suffered their largest closing declines since January 4.
During the sharp decline in crude oil in the first two days of this week, some comments pointed out that the decline was due to more and more signs that oil demand was weak, and investors were worried that the banking difficulties exposed by the collapse of Silicon Valley Bank would drag down the global economy. further dampening oil demand.
The media on Wednesday believed that in addition to the turmoil in the banking industry, behind the accelerated decline of crude oil on Wednesday was the influence of algorithmic trading, or programmed trading, and options trading. Specifically, technical selling and trading in options to cover offsetting positions also contributed.
Oil industry consultancy Ritterbusch and Associates told clients on Tuesday that energy markets appear to be linking recent problems in the banking sector to a possible recession.
The Energy Information Administration (EIA), a subsidiary of the U.S. Department of Energy, believes that the global oil market is facing a supply glut because Russian production has not declined as expected, while fuel demand is slowly recovering. The EIA predicts that global oil supply is expected to easily exceed demand in the first half of this year, with much of the excess supply reflecting a race to reroute abundant Russian oil barrels to new destinations.
The International Energy Agency (IEA) released a monthly report on Wednesday stating that oil has been accumulating in storage tanks as supply is strong while demand remains weak. In January this year, global inventories surged by 52.9 million barrels, and preliminary statistics from the United States, Japan and Europe showed that inventories continued to increase in February.
The IEA monthly report said inventories have increased to the highest level in 18 months. The market is caught in this oversupply countercurrent as supply exceeds still-weak demand. The report predicts a supply glut in the first half of this year.
Therefore, the current problem in the oil market is that there is too much oil produced and insufficient demand. Even under sanctions, Russia was able to increase production in February.
The collapse of Silicon Valley Bank also hit the European banking industry. On Wednesday, Swiss banking giant Credit Suisse was also in crisis. After its major shareholder, the National Bank of Saudi Arabia, was unwilling to provide further support, Credit Suisse’s share price closed down 24.24%, the largest single-day drop in history. The share price continued to hit a record low, closing down for the eighth consecutive day.
Since then, the Swiss National Bank issued a statement saying that it will provide liquidity to Credit Suisse when necessary and there is no sign that the current problem has a direct risk of contagion to Swiss banking entities.
Morningstar analyst Johann Scholtz believes that Credit Suisse’s financing costs are already too high and it must either raise capital or face disintegration. Credit Suisse has enough liquidity to deal with deposit outflows, but this does not resolve Credit Suisse’s profitability challenges, nor does it resolve capital market concerns.
Edward Moya, an analyst at Oanda, believes that all the current news seems to make people feel quite pessimistic about the outlook for crude oil demand. Credit Suisse is an important bank and its contagion risks are not going to ease anytime soon. At the same time, consumption in the United States has weakened, and Chinese real estate has also attracted attention.
There are also comments that the current challenge facing central banks around the world is to curb inflation by raising interest rates even if the banking system finds it difficult to raise interest rates quickly. Inflation in the United States remains high, and the Federal Reserve may have to continue to raise interest rates, bringing the risk of further economic weakness.
Dan Pickering, chief investment officer of Pickering Energy Partners, an energy industry financial services platform, believes that the final interest rate path of global central banks may have a significant impact on the oil industry.
Wall Street News noted that before crude oil futures hit a new low on Wednesday, the EIA announced that after last week’s announcement that crude oil inventories fell by nearly 1.7 million barrels more than expected in the previous week, marking the first weekly decline in the past 11 weeks, U.S. EIA crude oil inventories fell last week. Returning to growth, it increased by 1.55 million barrels from last week, compared with expectations for an increase of 1.5 million barrels.
The buildup in inventories is another sign of sluggish demand. EIA data shows that total U.S. crude oil inventories are at their highest level since May 2021.
The EIA also announced that crude oil inventories fell last week for the first time this year in a single week. Crude oil inventories in Cushing, the futures delivery place, dropped sharply by 1.916 million barrels last week, the largest drop since May 2021. Inventories in Cushing fell to a two-year high. Meanwhile, total U.S. crude oil production was roughly unchanged from the previous week.