Oil prices slumped nearly 5% on Wednesday, 15/03, to settle at their lowest levels in more than a year on concerns that a crisis of confidence in the banking sector could trigger a recession and reduce demand.
Oil recovered some of its earlier losses, along with benchmark stock indices, after Swiss regulators promised a liquidity lifeline to Credit Suisse which had already seen shares fall as much as 30%.
Both benchmark oil indices hit their lowest levels since December 2021 and have fallen for three days in a row.
Brent oil closed down $3.76, or 4.9%, at $73.69 a barrel. U.S. West Texas Intermediate (WTI) crude closed down $3.72, or 5.2%, at $67.61 a barrel.
Hedge funds were liquidating because of rising interest rates and economic uncertainty, said Dennis Kissler, senior vice president of trading at BOK Financial, adding that heavy selling pressure on US equity markets on Wednesday was adding to the fund liquidation in oil.
Brent crude has fallen more than 10% since Friday’s close, while US oil is down more than 14%.
The US dollar also strengthened against a basket of currencies, making it more expensive for holders of those currencies to buy oil.
Adding to the bearishness in the market, US oil stocks (USOILC=ECI) rose by 1.6 million barrels last week, government data showed, more than the 1.2 million barrel increase expected in a survey of analysts by Reuters news agency.
“The main driver behind price weakness is broad concern about the global economy and risk sentiment in the market,” said Stacey Morris, Head of Energy Research at data analytics firm VettaFi.
Meanwhile, figures showed that China’s economic activity rebounded in the first two months of 2023 after the end of COVID-19’s strict containment measures.
Wednesday’s monthly report from the International Energy Agency signalled an expected increase in China’s oil demand, a day after OPEC raised its Chinese demand forecast for 2023.