It seems that the events surrounding Silicon Valley Bank are moving at a rapid pace, and their impact was evident on oil prices during today’s trading, Monday, March 13 (2023).
The California-based firm grew to number 16 in the United States, catering to technology companies around the world before a series of failed investment decisions led to its collapse.
Global markets were affected by the collapse of the Silicon Valley Bank, and global oil markets were not immune from the repercussions of the crisis.
During today’s trading, Monday, March 13 (2023), Brent crude recorded its lowest level since early January (2023), while WTI touched levels not seen since early December (2022).
Oil prices fell by 01:30 pm GMT (3:30 pm Mecca time), by about 5.5%, to $78.5, as the collapse of the institution raised fears of a new financial crisis.
And by 5:54 pm GMT (8:54 pm Mecca time), oil prices began to reduce their losses to 3%, as they rose to 80.71 dollars.
In light of the exacerbation of the repercussions of the crisis on various markets, many oil market experts revealed, in exclusive statements to the energy platform, that the Silicon Valley bank crisis affected oil prices, but it will not last long, with expectations of the United States controlling the situation.
At the same time, it seems that America’s failure to solve the problem, and its continued repercussions on oil markets, may prompt OPEC + to intervene.
What is the relationship between the Silicon Valley crisis and oil prices?
The advisor and expert in the field of energy in the Sultanate of Oman, former Director General of Marketing at the Omani Ministry of Energy and Minerals, Ali bin Abdullah Al Riyami, referred to the remarkable improvement in oil prices at the end of last week.
He said, “We have seen a rise in oil prices at the end of last week, and this is due to the improvement in numbers in China, and the depreciation of the dollar, and these things were cause for optimism.”
He added, “During the past two days, we witnessed the collapse of the Silicon Valley Bank, and some other bank collapses followed, and this negatively affected oil prices, and prices fell during today’s trading, Monday, March 13 (2023), from 3 to 4%, which is equivalent to $2 and a half to about $3.”
Al-Riyami added – in statements to the specialized energy platform – that the US markets are still open, expecting that oil prices will witness further declines, although they will be limited, but he considers them the beginning of some collapses for some markets, including the oil market.
On this basis, Al-Riyami did not rule out that prices would drop, but at very limited rates.
Senior Advisor on Foreign Policy and Energy Geopolitics, Omod Shukri, also highlighted the uncertainty of the future of oil prices, especially since there are many factors that could affect prices in the coming years.
“Understanding these factors and their impact allows us to better prepare for the future and make informed decisions related to our energy needs,” Shukri said, in exclusive statements to the energy platform.
Shukry believes that oil prices will not drop by more than 5%, due to China’s economic growth and the rising demand for oil, and believes that prices will return to their normal course sooner or later.
In exclusive statements to the energy platform, Shoukry said that oil prices have been affected by the repercussions of the recent collapse of the Silicon Valley bank.
“The main reason behind this is the sharp decline in fuel demand caused by the large-scale downsizing of technology companies, along with the reduction in travel expenses of their employees,” he added.
“Since many startups in the technology sector were seen as potential consumers of oil and gas in the future, their collapse led to lower expectations for future oil demand growth,” he added.
This led to a significant decline in market sentiment towards energy stocks, as well as confidence in global economic stability in general.
“There is no doubt that the global economy is going through a difficult time, but it remains to be seen to what extent this impact will be in the long term, and specifically the energy sector,” said Shoukry.
Panic in the oil markets
In the same context, the founder of the “Vanda Insights” center on energy markets, Vandana Hari – said – in exclusive statements to the energy platform – that the collapse of the Silicon Valley bank caused panic reactions in the oil market, and this was reflected in prices, which fell by 5%. Earlier in today’s session, Monday, March 13 (2023).
Harry indicated that the repercussions of the recent crisis brought to mind the crisis of Lehman Brothers Bank, and raised concerns for some of them, which were exacerbated by the constant fears of a recession.
While Cyril Woodershoven, an expert on energy and the Middle East, said that the overall impression is now bearish when looking at the potential downfall of Silicon Valley Bank.
He said that despite the US government’s intervention in an attempt to prevent any sudden developments, “we are likely to witness more developments, but there are fears in the stock markets of a recurrence of the Lehman Brothers crisis again.”
At the same time, Woodershoven talked about the recent Saudi-Iranian developments, and said that stability and the lack of a direct threat of war with Iran would eliminate some of the concerns in the markets.
It seems that refuting fears of a repeat of the “Abqaiq” scenario contributes to calming the instability in the markets, he said.
He said – in exclusive statements to the energy platform – that some of them expect more Iranian oil to flow into the markets, but that will not happen during the years 2023 and 2024.
And he went on to explain: “In general, economic and inflationary concerns control pricing – currently -, and the Silicon Valley crisis is just evidence that the financial data is not strong enough at the present time, and inflation fears remain, and mortgage rates are rising, which is A mixture you don’t want to taste.”
At the same time, Dr. Carol Nakhle, CEO of Kristol Energy, an energy research and consulting company, indicated, in statements to the energy platform, that the conditions in the oil market reflect the trends in the markets after the collapse of the Silicon Valley bank.
She said that the recent crisis generated greater fears that the economic recession has become a more likely scenario compared to the previous period, and there is a wave of fear affecting investors in the markets, and this was one of the main reasons that constituted negative pressure on oil prices, in addition to the agreement between Saudi Arabia and Iran, and this Reduce political and geopolitical pressures in the Middle East, which is a key region for oil exports.
On a related note, Giovanni Stanovo, a commodities analyst at Swiss bank UBS, believes that the main motive for selling is the aversion to the prevailing risks in the market, driven by fears that the aggressive monetary policy tightening of the Federal Reserve has affected the economic growth in the United States.
He added that the near-term trajectory of risky assets will be driven by how the central bank and governments deal with the concerns of these markets.
Do the losses extend to the next sessions?
Regarding the losses of the coming sessions, the consultant and expert in the field of energy in the Sultanate of Oman, Ali bin Abdullah Al Riyami, former Director General of Marketing at the Omani Ministry of Energy and Minerals, did not expect oil prices to drop to $50 or less, but he believes that the markets will be affected for a certain period.
In addition, he did not rule out the possibility of the collapse of some other banks, or the declaration of bankruptcy, explaining that the problem is complex and deep, and despite the presence of some assurances from the US government and the US Federal Bank to intervene and from US President Biden’s speech, more developments will appear in the near future.
He said, “The impact of the crisis is there, and oil prices will continue to decline in a limited manner, and they can reach approximately $75, or a little higher than that, but for a limited period of time.”
At the same time, Al-Riyami believes that the decline will not last for longer than two or three weeks, until the US government and federal agencies intervene and return to the previous situation, with great fear in the financial markets.
As for the founder of the “VandaInsights” center on energy markets, Vandana Hari, believes that the losses in crude oil prices have been exacerbated by the crisis, but this does not mean that it will continue.
She said – in exclusive statements to the energy platform -: “If the US regulators succeed in containing the repercussions resulting from the crisis, as is now clear, it is unlikely that this will affect the crude oil markets.. In this case, prices must recover all of today’s losses.” “.
While the senior adviser on foreign policy and energy geopolitics, Omod Shukry, explained that oil prices depend on many variables, and with regard to the bankruptcy of the Silicon Valley Bank, the US authorities took a decision to help the bank and those who have accounts in this bank, and because of these measures, Shukry expected stability in prices oil.
Shoukry pointed out that the problem of the Silicon Valley bank is not similar to the banking crisis in 2008 and 2009 in the United States.
He added, “If it was similar to that crisis, it would have had a greater impact on the oil market.. I think that this crisis will be resolved in the short term, and its scope will not extend to other sectors.”
Shukri does not believe that the price of crude oil will drop to $50 or less, especially since the economic growth of energy consumers indicates the need for more oil in the coming months, and the need to meet market requirements.
While the expert on energy and the Middle East, Cyril Woodshoven, does not expect the crisis to affect the oil markets for a long time or real risks on the supply side, explaining that the global market is still strong.
On the demand side, it is weak in light of inflation and economic crises, with the exclusion of a recession at the same time.
Woodershoven said – in statements to the specialized energy platform – that Europe is still not looking to enter into a real recession, but the stock markets have been severely affected, and oil may be affected by high temperatures soon, and it is expected that demand will decline for heating.
He believes that what happened is just a reaction to the collapse of Silicon Valley, and the fear of the fall of some other banks, but it does not seem that the Lehman scenario will be repeated, adding that European banks are stronger than they were in 2008.
While commodities analyst at Swiss bank UBS Giovanni Stanovo said: “We still maintain positive price expectations over the coming months, but prices are likely to remain volatile in the near term.”
What about the intervention of OPEC +?
The consultant and expert in the field of energy in the Sultanate of Oman, former Director General of Marketing at the Omani Ministry of Energy and Minerals, Ali bin Abdullah Al Riyami, did not rule out OPEC’s intervention in the event of a price drop of more than $70, although the issue has nothing to do with market factors, and OPEC usually intervenes when The price drop is for reasons directly related to the oil market.
He said, “This issue has to do with financial markets and banks, and usually OPEC or OPEC + do not intervene, but if prices drop to more than $70 and continue for a period of time, I expect OPEC to intervene, but – currently – I do not expect it to have anything to do with the issue.”
A senior adviser on foreign policy and energy geopolitics, Omod Shukri, said: “If the United States cannot control the problem of the Silicon Valley Bank, and the global economy suffers from bankruptcy, and oil prices reach levels that are inconsistent with the interests of OPEC and OPEC +, then it can be said that the Organization of Countries The oil exporter may limit oil production, and we are witnessing another decrease in the production ceiling, but I do not think that the situation will reach this stage.
Vandana Hari, founder of the Vanda Insights Center on Energy Markets, agreed with this view, saying that OPEC should monitor these events closely, but that there is no need to make any decision yet.
While the expert on energy and Middle East affairs, Cyril Woodershoven, referred to the statements of the past weeks, and the continuation of the OPEC + policy related to reducing the production ceiling until the end of 2023, expecting no change in policies.
He said that if any reaction is shown, it will come as a surprise, and this will shake their statements or visions and even regarding the issue that they are not market makers, or prices.
He added, “We do not expect anything yet, as the financial reserves of the prominent OPEC countries are full at the present time.. and Aramco’s profits are still resonating, so any move now to influence the markets will not be linked to the stability of the markets, but rather to the stability of OPEC’s income, nor This can be taken lightly, even by China.”
In this regard, Dr. Carol Nakhle, CEO of Kristol Energy Research and Energy Consulting, believes that it is still too early to determine whether OPEC will intervene, especially with not knowing whether the current reaction is temporary, expressing some concerns, or whether its impact will be. going on.
Carole Nakhle – in her statements to the energy platform – does not expect OPEC to take a quick decision at the present time, but if prices remain in a downward trend, it is possible to talk about a change in policies.
Leave a Reply