Oil prices fell $2 in volatile trading on Monday as the collapse of Silicon Valley Bank hit equities markets and raised fears of a fresh financial crisis, but a recovery in Chinese demand provided support.
Brent crude futures were down $2.03, or 2.5%, to $80.75 per barrel by 1401 GMT. West Texas Intermediate U.S. crude futures (WTI) fell $2.11, or 2.8%, to $74.57 a barrel.
Brent earlier in the session hit lows last seen in early January while WTI touched prices last reached in early December.
Fears of contagion from the failure of Silicon Valley Bank led to a sell-off in U.S. assets at the end of last week, while state regulators closed New York-based Signature Bank on Sunday.
Europe’s STOXX bank index was down 5.8%, having shed 3.8% on Friday. U.S. authorities launched emergency measures on Sunday to shore up confidence in the banking system.
“Investor sentiment towards these sectors will be hit in the near term. The crisis indicates that there continues to be sizeable risks in financial markets”, said Daniel Casali, chief investment strategist at wealth management firm Evelyn Partners.
“Interest rates have moved a long way in a short space of time, exposing weaknesses across the global financial system.” Market sentiment was already fragile as worries about further monetary tightening by the Federal Reserve have been exacerbated by high U.S. crude oil inventories.
In recent days a weaker dollar, which makes oil cheaper for holders of other currencies, has lent some support to prices.
Oil’s fall follows positive momentum on Friday, when U.S. employment data surprised to the upside. Data for February beat expectations, with nonfarm payrolls rising by 311,000, compared with expectations of a gain of 205,000 in a Reuters survey.
From a medium- to long-term supply perspective, energy services firm Baker Hughes Co on Friday said U.S. energy firms last week cut the number of oil and natural gas rigs operating for a fourth week in a row for the first time since July 2020.