Oil prices have fallen over $2 on Monday, and were down as much as $4 in early trading, as fears of a contagion spread following the sudden collapse of Silicon Valley bank on Friday.
By 10:20 a.m. EST on Monday, Brent crude had fallen 2.31% to $80.87, with WTI down 2.62% at $74.67.
The Dow was also plunged over 243 points early on Monday, clawing back some of those losses by 10:20 a.m., for a 70 point downswing.
Oil prices likely would have fallen even more had not Chinese demand data not provided a counterweight.
Fears of a pending financial crisis were sparked on Friday when the U.S. government seized the assets of Silicon Valley Bank (SVB)
SVB, the go-to lender for tech startups backed by venture capitalists, failed dramatically on Friday, with shares plunging 60% before the SEC halted trading. On Wednesday, the bank announced a massive capital raise, saying it would sell $2.25 billion in new shares to fix the balance sheet. That created a panic and a run on the bank, sending shares tanking by Friday, leading to an FDCI takeover.
On Sunday, Washington launched emergency measures to avoid the contagion spreading into a wider financial crisis. The Biden administration pledged that banks will bear the losses, not taxpayers.
"No losses will be — and this is an important point — no losses will be borne by the taxpayers; let me repeat that, no losses will be borne by the taxpayer," Biden said Monday in remarks at White House. "Instead the money will come from the fees that banks pay into the Deposit Insurance Fund."
Following the bank’s failure, Goldman Sachs has forecast that the Federal Reserve will now pause rate hikes during its meeting next week.
"We think the steps taken by the Fed, Treasury and (the Federal Deposit Insurance Corp) will decisively break the psychological 'doom loop' across the regional banking sector," Karl Schamotta, chief market strategist at Corpay in Toronto, told Reuters.
By Charles Kennedy for Oilprice.com
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