(Montel) Oil prices drop amid banking rout, eyes on US inflation data

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Oil prices slumped on Tuesday as the market awaited the publication of US inflation figures amid a banking rout and a further build-up in US crude inventories.

The front-month contract for Brent crude North Sea oil traded down USD 0.80 at USD 79.97/bbl on Ice Futures, while the US WTI equivalent was USD 0.62 lower at USD 74.18/bbl.

US inflation data for February is due later today. “This data point should give some clarity on what the Fed may do next week at their FOMC meeting, although there will still be plenty of uncertainty,” analysts at ING said in a note.

“The fears of further rate hikes … are expected to worsen the evident dents in the underlying banking sector,” Phillip Nova warned.

For CMC Markets, which expects US inflation to cool down to 6%, the data “might be overshadowed by the ongoing banking rout but it will also distract investors from the current market fizz”.

On Monday, the Brent crude benchmark fell below USD 79/bbl for the first time since January, despite the US Federal Reserve on Sunday implementing an emergency lending facility to help shore up the US banking system after the failure of Silicon Valley Bank (SVB) and Signature Bank.

The collapse of both banks “rings a louder bell to the Fed, with analysts now seeing a pause or at least a slowdown in rate hikes from the March meeting”, CMC Markets pointed out.

US inventories

Meanwhile, analysts at ANZ bank said recent gains in commercial crude oil inventories in the US “have clearly weighed on sentiment”.

In the week ending 3 March, US commercial crude inventories were at 478.5m barrels, around 7% above the five-year average for the time of year, according to official data.

The US Energy Information Administration will publish its latest weekly inventory data on Wednesday.

Phillip Nova, citing an estimate from Reuters, said US crude inventories rose by 0.6m barrels in the latest week.

The prospect of a further increase in US inventories “has overshadowed signs of stronger demand in China”, the ANZ analysts said.

Markets are keeping an eye out for China’s recovery after the lower-than-expected GDP target that the country recently unveiled hampered hopes for oil demand this year.