Oil prices decline and surge after second largest bank collapse in U.S. history

(Bloomberg) – Oil prices slid and volatility surged as traders fled risk and tried to come to grips with how the biggest U.S. bank collapse since 2008 would reverberate through the economy.

Brent, the global benchmark, fell below $80 for the first time since early February as investors fled risk assets and poured into safer bets but recovered some of those losses as U.S. authorities unveiled emergency measures aimed at strengthening confidence in the banking system and preventing contagion.

West Texas Intermediate’s front-month 50-day implied volatility measure rose about 16 percentage points, the most since the beginning of Russia’s invasion of Ukraine in 2022. Traders are also closely watching the Federal Reserve’s next move after Goldman Sachs Group Inc. scrapped its call for a Federal Reserve interest-rate hike next week due to the turmoil.

“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,” said Ed Moya, senior market analyst at Oanda. “Oil’s rollercoaster ride won’t be over anytime soon as Tuesday’s inflation report could upend the rally hitting Treasuries.”

Many market watchers are still bullish on the longer-term outlook. Saudi Aramco forecasts consumption will probably hit a record of 102 MMbpd by the end of 2023 while OPEC and its allies restrain output and shale’s growth remains lackluster.