By Barani Krishnan
Investing.com -- The assurance of authorities that all’s well and dandy on the U.S. banking front hasn’t won the confidence of Moody's, which downgraded the sector on Tuesday, sending crude prices down again on the notion that an economy in trouble won’t help oil.
New York-traded West Texas Intermediate, or WTI, crude was down $1.86, or 2.4%, to $72.98 per barrel by 12:55 ET (16:55 GMT). On Monday, it settled down more than 2%, hitting a two-month low of $72.33.
London-traded Brent crude was down $1.85, or 2.3%, to $78.92. Like WTI, Brent hit a two-month low in the previous session, touching $78.35.
Crude prices have slid since Monday in the wake of last week’s collapse of Silicon Valley Bank (NASDAQ:SIVB), which forced the Federal Deposit Insurance Corp to seize control of the California-based lender and at least one other bank to prevent contagion. The Biden administration has assured depositors in U.S. banks that their money is safe and that there will be no rerun of the 2008 financial crisis. The Federal Reserve said it was conducting a thorough review to help plug holes in the banking system.
Despite this, Moody’s issued a downgrade of the banking sector, citing a “rapidly deteriorating operating environment” that it said carried risks associated with the Fed’s plan to continue raising interest rates. The central bank has added 450 basis points to rates over the past year to control headline inflation, which the Consumer Price Index showed stood at 6% in February, three times above the Fed’s annual 2% target.
What’s surprising, some analysts say, is oil’s continued tumble on the so-called SVB crisis despite Wall Street’s three major stock indices — the Dow, S&P 500 and Nasdaq — all rebounding strongly from Monday’s slide.
“Oil prices are continuing to whipsaw while remaining within the broad ranges they've traded within since early December,” noted Craig Erlam, analyst at online trading platform OANDA. “Yesterday we saw Brent and WTI testing the lower end of these in response to the turmoil that erupted in the financial system that triggered widespread risk aversion.”
“Today we're seeing them trade lower again, albeit still higher than yesterday's lows. If we see markets settle down, that could prevent a break of the lows but oil traders, like those elsewhere, will remain nervous about the prospect of further turbulence. Suddenly, a break below the lows looks a much greater risk which may keep pressure on in the short term.”