Oil prices plunged by 4% early on Friday as the U.S. dollar rallied and banking stocks in Europe crashed in a sign of renewed pressure on the sector.
As of 8:08 a.m. EDT on Friday, WTI Crude was down by 3.99% at $67.27, and Brent Crude traded down 3.65% on the day at $73.20.
On Thursday, Brent settled at above $75 and WTI at over $70 per barrel. On Friday morning, oil prices had nearly wiped out the gains of this week accumulated on Wednesday and Thursday.
On Friday, oil prices slumped again as the U.S. dollar was rallying, thus making crude more expensive for buyers holding other currencies.
In addition, the banking sector in Europe was under intense selloff, with shares in Deutsche Bank and UBS crashing amid concerns about the cost of funding and contagion of the banking sector turmoil.
Concerns about Deutsche Bank intensified on Friday and sent the Dow Jones stock futures down by over 300 points.
“European banks are under pressure as funding costs soar,” said Peter Garnry, Head of Equity Strategy at Saxo Bank.
Commodities led by crude oil saw renewed selling ahead of the weekend with European banks being under pressure, Saxo Bank’s Head of Commodity Strategy, Ole Hansen, commented.
Oil, as a riskier asset, again came under pressure from the financial market turmoil due to concerns about the global banking sector.
Adding to the bearish sentiment in oil, the United States signaled it is unlikely to fill the Strategic Petroleum Reserve (SPR) this year, which weighs on demand for crude.
On Thursday, U.S. Energy Secretary Jennifer Granholm said it would take years to replenish the nation’s Strategic Petroleum Reserve. When the Biden Administration sold off 221 million barrels of crude oil from the SPR last year, the idea was to buy oil to replace what was withdrawn. In October of last year, the Administration announced that it would repurchase crude oil for the reserve when prices were at or below about $67-$72 per barrel. The move would be dual purpose in that not only would it replenish the nation’s depleted reserves, but it would boost demand when prices were low instead of sending them into orbit at a time or regular prices.
By Tsvetana Paraskova for Oilprice.com
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The news that European banks’ stocks including shares of Deutsche and UBS banks crashed today will continue to affect prices until the problems are sorted out.
The crash of UBS bank shares is of particular importance since it is Switzerland’s biggest bank and also because it agreed few days ago to buy Credit Suisse Switzerland’s second largest bank because of a plunge in its stocks in the aftermath of the collapse of Silicon Valley Bank.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert