Oil posts the worst weekly loss since the start of the pandemic

Oil posted its worst weekly loss since the early months of the COVID-19 pandemic on Friday as banking turmoil poisoned investor sentiment.

West Texas Intermediate for April delivery fell 2.36% to $66.74 a barrel, down 12.96% for the week, the biggest decline in nearly three years.

Brent crude for May delivery fell 2.32% to $72.97, posting a weekly loss of 11.85%.

The failure of Silicon Valley Bank and problems at Credit Suisse Group AG pushed investors away from risky assets, with oil options covering the acceleration in selling.

“The brutal actions this week have reminded many of how quickly the commodity can be decimated by macroeconomic events,” said Rebecca Babin, senior energy trader at CIBC Private Wealth. “The commodity has moved above an important support level as the market attempts to quantify the economic ramifications of the banking turmoil.”

Traders were waiting for a catalyst to pull prices out of the relatively narrow trading range that has dominated the market, as expectations of a rebound in Chinese demand compete with a weaker economic outlook in the West.

This week’s banking crisis provided the spark, pushing oil prices to a 15-month low. This fall triggered another: prices fell so low that 43,000 options contracts totaling over 40 million barrels of crude went “in the money”, resulting in a nice payday for some, while further aggravating the slowdown.

The next step for oil could depend on the decisions of the US Federal Reserve and OPEC. The Fed must decide next week whether to raise rates again, a move that has implications for oil demand.

In the meantime, OPEC and its allies are to meet on April 3 to review the group’s production policy. Several technical metrics suggest that the recent drop has pushed the commodity into oversold territory.

Additional reports by staff writer