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Banking industry

Banking Crisis Sparks Oil Price Crash and Precious Metal Surge

Strategic Insights

— 2 min read

The collapse of Silicon Valley Bank and subsequent banking crisis have sent shockwaves through the entire financial sector, leading to a major sell-off in crude oil futures and a surge in precious metal prices. The heavy selling of crude oil and gasoline futures coincided with a move into precious metals, with silver and gold seeing a net increase in long positions while all other classes of crude and crude products apart from heating oil and natural gas saw a net increase in short positions.

Key Takeaways:

  • The collapse of Silicon Valley Bank led to a major sell-off in crude oil futures, with WTI crude falling from $80.46 per barrel to the $67 range and Brent declining from $86.18 per barrel to the $73 range, levels they last touched in December 2021.
  • Commodity analysts at Standard Chartered attributed the oil price crash to hedging activity, specifically gamma hedging effects, where banks sold oil to manage their side of options as prices fell through the strike prices of oil producers put options and volatility increases.
  • The Commitment of Traders (CoT) report published by the Commodity Futures Trading Commission (CFTC) revealed that there was heavy selling of crude oil and gasoline, combined with a rapid move by funds into precious metals four days after the collapse of Silicon Valley Bank.
  • Money-manager net selling across the four main Brent and WTI Contracts hit a staggering 128.1 million barrels (mb) in the week to 14 March.
  • StanChart's crude oil positioning index fell 41.6 w/w to -67.0, the largest single-week decline in six years, while its gasoline positioning index fell by 36.4 to -6.6, marking the first time it had turned negative in 20 months.
  • Gold prices have jumped nearly 9% since March 10, and now sit at $1,995/Oz, not far from the all-time high.
  • Silver prices have rocketed over 16% to trade at $23.35/Oz.

Statistics:

  • WTI crude price fell from $80.46 per barrel to the $67 range, a decline of 16.2%.
  • Brent crude price declined from $86.18 per barrel to the $73 range, a decline of 15.4%.
  • Money-manager net selling across the four main Brent and WTI Contracts hit 128.1 million barrels (mb) in the week to 14 March.
  • StanChart's crude oil positioning index fell 41.6 w/w to -67.0, the largest single-week decline in six years.
  • StanChart's gasoline positioning index fell by 36.4 to -6.6, marking the first time it had turned negative in 20 months.
  • Gold prices have jumped 9% since March 10, to $1,995/Oz.
  • Silver prices have rocketed 16% to trade at $23.35/Oz.

Sources:

  • Alex Kimani, "Banking Fears Linger as Oil Prices Crash to Multi-Year Lows"
  • Standard Chartered, "Crude Oil Positioning Index"
  • Commodity Futures Trading Commission (CFTC), "Commitment of Traders (CoT) Report"
  • Reuters, "European Central Bank President Christine Lagarde reassures EU leaders that the euro area banking sector was resilient"
  • UBS Wealth, "Chief Investment Officer Mark Haefele"

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