Crude Oil Prices Plunge Amid SVB Collapse and Financial Crisis Fears

Key Takeaways:

• Crude oil prices fell nearly 2% on Monday amid concerns over the collapse of Silicon Valley Bank and fears of a fresh financial crisis.
• A recovery in Chinese demand provided some support, but worries about Fed monetary tightening and high U.S. oil inventories continue to pressure prices.
• Positive momentum from Friday’s employment data was short-lived, as choppy trading in U.S. stock indexes weighed on market sentiment.

Oil prices fell nearly 2% on Monday amid volatile trading as concerns over the collapse of Silicon Valley Bank triggered fears of a fresh financial crisis. However, a recovery in Chinese demand provided some support.

The U.S. benchmark, West Texas Intermediate crude futures (WTI), dropped to its lowest price since December.

At 19:00 GMT, June WTI crude oil futures are trading $74.47, down $2.33 or -3.03%. The United States Oil Fund ETF (USO) is at $65.29, down $1.85 or -2.75%.

Heightened Volatility Produces Violent Two-Sided Trade

Oil prices whipsawed as investors considered market effects from the news.

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.

Investors weighed a possible pause in interest rate hikes by the Federal Reserve in March, leading to choppy trading in U.S. stock indexes.

Emergency measures were launched to shore up confidence in the banking system. The sudden shutdown of SVB Financial triggered concerns about risks to other banks resulting from the Fed’s sharp rate hikes over the last year.

The Fed’s difficulty in raising interest rates aggressively may cause weakness in the dollar, which makes oil cheaper for holders of other currencies and typically supports oil prices.

Worries about further Fed monetary tightening have been exacerbated by high U.S. crude oil inventories.

Daily June WTI Crude Oil Futures Technical Analysis

The main trend is down according to the daily swing chart. A trade through $80.97 will change the main trend to up. A move through the Dec. 12 main bottom at $71.25 will reaffirm the downtrend.

The minor trend is also down. A trade through $77.57 will change the minor trend to up, shifting momentum to the upside.

The major support is the long-term retracement zone at $73.05 to $68.76. This zone stopped the selling at $72.53 on Monday.

The major resistance is $78.29 and $78.83.

Daily June WTI Crude Oil Futures Technical Forecast

Trader reaction to a pivot at $76.75 is likely to determine the direction of the June WTI crude oil market into the close on Monday.

Bearish Scenario

A sustained move under $76.75 will indicate the presence of sellers. This could lead to a retest of the long-term retracement zone support at $73.05 – $68.76. Inside this zone is a main bottom at $71.25.

Bullish Scenario

A sustained move over $76.75 will signal the presence of buyers. If this creates enough upside momentum then look for the rally to possibly extend into $78.29 to $78.83.