Oil is the worst weekly loss since the beginning of the pandemic

Oil posted its worst weekly loss since the early months of the COVID-19 pandemic on Friday as turmoil in the banking sector poisoned investor sentiment.

West Texas Intermediate for April delivery fell 2.36 percent to $66.74 a barrel, down 12.96 percent on the week, the biggest drop in nearly three years.

Brent crude for May delivery fell 2.32 percent to $72.97, making the weekly loss 11.85 percent.

The failure of Silicon Valley Bank and problems at Credit Suisse Group AG drove investors away from risk assets, and oil options covered the selloff.

“The crude action this week reminded many of how quickly macroeconomic events can destroy a commodity,” said Rebecca Babin, senior energy trader at CIBC Private Wealth. “The commodity broke major support as the market tried to gauge the financial consequences of the turmoil in the banking market.”

Traders had been waiting for a catalyst to break prices out of the relatively narrow trading range that has dominated the market, as expectations of a recovery in Chinese demand compete with a weaker economic outlook in the West.

This week’s banking crisis provided the spark that drove oil prices to 15-month lows. That plunge triggered another: prices fell so low that 43,000 options contracts, totaling more than 40 million barrels of crude oil, went “in the money,” leading to a tidy payday for some while deepening the recession.

The next phase of oil may depend on the decisions of the US Federal Reserve and OPEC. The Fed will decide next week whether to raise interest rates again, which will affect oil demand.

Meanwhile, OPEC and its allies will meet on April 3 to review the group’s production policies. Several technical measures suggest that the recent collapse has pushed the commodity into oversold territory.

Additional reporting by a staff writer