Oil extends drop as inflation pressures Fed amid banking fallout

Oil extended losses as the biggest U.S. bank collapse since 2008 continued rippling through financial markets, while stubborn inflation complicated the Federal Reserve’s scope to deal with the crisis.

West Texas Intermediate traded below US$74 a barrel after closing 2.5 per cent lower Monday following a volatile session buffeted by fallout from the demise of Silicon Valley Bank. Underlying U.S. consumer prices rose in February by the most in five months, data showed Tuesday, forcing a tough choice for Fed officials in their next interest-rate decision. Bets are increasing that the central bank will hold off another hike. 

Brent’s nearby put skew — a gauge of how much more traders are willing to pay for contracts that profit from a price decline rather than a rally — rose to the highest level since mid-August on Monday amid the market turmoil.

“A wave of risk aversion swept across the markets amid fears of a broader financial crisis,” said Carsten Menke, an analyst at Julius Baer Group Ltd. Nonetheless, “we see the developments as more noise than news, which should not have any meaningful medium- to longer-term impact on most commodity markets.”