Oil prices plummeted by more than 4% at the close of trading on Tuesday to their lowest level in three months, as a U.S. inflation report and the recent collapse of two American banks raised concerns about a potential new financial crisis that could reduce future oil demand. Brent crude futures fell by $3.32, or 4.1%, settling at $77.45 a barrel, while West Texas Intermediate (WTI) crude dropped by $3.47, or 4.6%, to settle at $71.33. This marked the lowest closing level for both benchmarks since December 9 and the largest percentage decline in a single day since early January.
The collapse of Silicon Valley Bank followed by Signature Bank led to a decline in bank stocks as investors grew concerned about the financial safety of some banks. Meanwhile, the U.S. Consumer Price Index rose sharply in February, as Americans faced ongoing increases in rental and food costs, complicating the Federal Reserve's (central bank) battle against inflation exacerbated by the bank failures. Data showed the index increased by 0.4% in February, down from 0.5% in January.
The Federal Reserve is expected to raise the benchmark interest rate by just a quarter of a percentage point next week, down from a previously anticipated 50 basis points, followed by another increase of the same size in May. The Fed’s next meeting is set for next Tuesday and will last two days. The Fed is raising interest rates to rein in inflation; however, higher rates increase consumer borrowing costs, which could slow the economy and reduce oil demand.
