As concerns about the banking system weigh on markets around the world, the price of oil has come under significant pressure in recent days with West Texas Intermediate, the US benchmark, falling below $67 on Wednesday, its lowest price since November 2021. .
On Wednesday, WTI fell nearly 7% to trade as low as $66.47 a barrel. Recently, on March 6, WTI was trading north of $80. Brent crude, the international benchmark, traded as low as $72.60 a barrel on Wednesday.
The collapse in oil prices this week comes as the latest data on U.S. oil inventories shows a steady build in inventories amid what Carolyn Payne, chief commodity economist at Capital Economics, called “low domestic demand” in a note to clients on Wednesday.
Data from the American Petroleum Institute released on Tuesday showed inventories rose for the 10th consecutive week for the week ending March 10, while the weekly Energy Information Administration The Oil report showed on Wednesday Crude oil inventories increased last week, indicating that inventories rose 7% over the five-year average.
Payne also pointed to the Biden administration’s decision on Monday to approve a massive drilling project in Alaska as a sign that more supply may be coming to a market that isn’t already facing an oil shortage.
“The approval of a curtailment project was and will continue to face legal challenges, but it is significant because President Biden has broken his campaign promise to ban all drilling on federal land,” Payne wrote. At full operation at 180,000 [barrels per day]That would mean a 40% increase in oil production in Alaska to about 620,000 barrels per day.”
The drop in oil prices created some echoes of the panic that the oil markets experienced in the spring of 2020.
Oil sold aggressively that spring as a global recession caused by the pandemic clouded the demand picture. But the rapid drop in the price of oil eventually created the resulting real-world storage mismatches WTI fell to minus $40 a barrel Traders worked to avoid forced delivery of oil they could not store.
The dollar’s rise also weighed on oil prices on Wednesday. The dollar saw somewhat muted trading during the initial fallout from the Silicon Valley bank failure, but was broadly strengthening on Wednesday as Credit Suisse’s latest tussles raised growing concerns about the global fallout from recent US bank failures.
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