On Wednesday, WTI fell nearly 7% to trade as low as $66.47 a barrel. barrel. As recently as March 6, WTI hands were trading north of $80. Brent crude, the international benchmark, traded as low as $72.60 a barrel on Wednesday.
This week’s collapse in oil prices comes as the latest data on U.S. oil inventories showed a steady build in inventories amid what Capital Economics commodities economist Caroline Bain called “subdued domestic demand” in a note to clients on Wednesday.
Data from the American Petroleum Institute released on Tuesday showed inventories rose for the 10th straight week for the week ended March 10, while the Energy Information Administration’s weekly oil report out on Wednesday showed a rise in inventories of crude last week, noting that inventories are running 7% higher than their five-year average.
Bain also pointed to the Biden administration’s decision on Monday to approve a massive drilling project in Alaska as a sign that more supply could be coming to a market already not facing a shortage of oil.
“The approval was for a smaller project and will still face legal challenges, but it is important because President Biden has broken his campaign promise to ban all drilling on federal lands,” Bain wrote. “When fully operational at 180,000 [barrels per day]that would mean a 40% increase in Alaska’s oil production to about 620,000 bpd.”
The recent decline in oil also has some echoes of the panic in the oil markets in the spring of 2020.
Oil sold aggressively that spring as a global recession caused by the pandemic muddied the demand picture. But the rapid decline in oil prices ultimately created real-world inconsistencies that resulted in WTI falling to negative $40 per barrel.
A rise in the dollar also pressured oil prices on Wednesday. The dollar had seen fairly muted trading during the initial fallout from the Silicon Valley Bank failure, but strengthened broadly on Wednesday as Credit Suisse’s latest struggles trigger growing fears of the global fallout from the recent US bank crash.
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