Oil prices fell more than $2 a barrel on Tuesday, extending the previous day's decline, as the collapse of Silicon Valley Bank rattled equity markets and stoked fears of a new financial crisis.


Brent crude futures fell $1.11, or 1.3%, to settle at $79.66 a barrel on Tuesday, after earlier hitting a low of $78.76. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures fell $1.24, or 1.6%, to settle at $73.56 a barrel, off a low of $72.69. The decline in oil prices coincided with a continued decline in equity markets. Brent and WTI prices fell to their lowest levels since early January and December respectively on Monday. The abrupt closure of Silicon Valley Bank raised concerns about the risk to other banks from the U.S. Federal Reserve’s sharp interest rate hikes over the past year. Markets are now expecting a 25 bps rate hike instead of a 50 basis point (bps) hike next week. A lower rate hike forecast could mean a weaker dollar, which in turn could be bullish for oil prices. The Federal Reserve’s next two-day meeting begins next Tuesday.

 

 


US and China Consumer Inflation


U.S. consumer prices rose 0.4% in February, matching forecasts, which would bring the year-on-year increase in the consumer price index (CPI) to 6.0% in February and mark the smallest year-on-year increase since September 2021. Meanwhile, consumer inflation in China, the world’s largest oil importer, slowed to its lowest level in a year in February.


China Oil Demand Growth Forecast


In a monthly report, the Organization of the Petroleum Exporting Countries (OPEC) raised its forecast for China's oil demand growth in 2023, although the global total remained stable.


Conclusion


The drop in oil prices coincided with a decline in equity markets due to the sudden closure of Silicon Valley Bank. A rise in US interest rates could affect the oil market and affect the price of the dollar. Meanwhile, US and Chinese consumer inflation and OPEC's forecast for Chinese oil demand growth could affect future oil price trends.

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