Brent slips below $80/bbl for the first time in a month

Front-month ICE Brent has slumped lower by $3.14/bbl on the day, to $79.25/bbl at 09.00 GMT.

PHOTO: Silicon Valley Bank headquarters in Santa Clara, California in the US. Getty Images

Upward pressure

The number of rigs extracting crude oil and natural gas in the US fell by three to 746 last week, Baker Hughes reported. The rig count fell for a fourth consecutive week for the first time since July 2020 and recorded the lowest number of weekly oil and natural gas rigs in operation since June 2022.

A combination of an improved outlook for Chinese oil demand and a decline in US rig counts could lead to tighter oil markets.

“Supply side issues” are surfacing in the oil markets, according to ANZ commodity strategist Daniel Hynes. “Over 4mbbl [4 million bbls] of Russian diesel is said to be temporarily stored on oil tankers as the country deals with the fallout from the EU sanctions,” he says.

“The collapse of Silicon Valley Bank has sent the US dollar in retreat against the majors, as the market expectations of a 50-bps [interest rate] hike from the [US Federal Reserve] Fed next week have evaporated,” said OANDA’s senior market analyst Edward Moya. Silicon Valley Bank (SVB), a big-name US bank with a value of more than $200 billion, was shut down by US regulators last week.

Downward pressure:

On the flip side, shockwaves from SVB's collapse caused a domino effect of investors selling commodities to reduce their exposure to riskier assets, which has driven prices down. “The oil market was unable to escape the broader risk-off move as markets grappled with the spillover from the SVB collapse,” said ING’s head of commodity strategy Warren Patterson.

“Energy traders were not expecting the collapse of the 16th-largest lender in America to trigger a major risk-aversion wave that would send Brent crude below the $80 a barrel level. The chaos in the bond market is also weighing on commodities. Oil’s rollercoaster ride won’t be over anytime soon as Tuesday’s inflation report could upend the rally hitting Treasuries,” OANDA’s Edward Moya says.

The White House has approved the Willow oil project, led by ConocoPhillips in Northwest Alaska. According to ConocoPhillips, the site is expected to supply around 180,000 b/d “at its peak” to help the US decrease its dependence on “foreign energy supplies.”

By Konica Bhatt

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