Infographic: Bank turmoil hits oil markets but fears of 2008 repeating itself look overdone

Banner Image

Oil traders were weighing the prospect March 20 of a new global banking crisis similar to 2008 hitting hydrocarbons demand, but a backwardated market structure signals prices could be more resilient to financial turmoil.

The sudden collapse of Silicon Valley Bank in the US and emergency takeover of Credit Suisse with the help of Switzerland's central bank have helped to push crude lower. Platts -- part of S&P Global Commodity Insights -- assessed Dated Brent at $71.705/b on March 20. The measure is down almost 15%, or $11/b, since SVB's shares collapsed after it announced losses on March 9, triggering regulators to seize control a day later.

The sudden fall in oil prices is reminiscent of the events marking the beginning of the last major banking crisis when HSBC in February 2007 unexpectedly revealed losses from the US subprime mortgage market. Eventually the collapse of Wall Street investment banks and an unprecedented $700 billion bailout of banks by the US federal government would trigger a period of extreme volatility in energy markets.

Crude hit a record $147.02/b on July 11, 2008, just months before US mortgage lending giants Freddie Mac and Fannie Mae were bailed out. However, oil traders argue it's too soon to predict the current uncertainty hitting banks turning into an economic contagion on a scale of what was seen in 2008.

"So far it doesn't look like the same kind of situation [as 2008] but we don't know what we don't know," said Trafigura Chief Economist Saad Rahim, speaking at the FT Commodities Global Summit in Lausanne.

Rahim's caution was also shared by Vitol, the world's largest independent oil trader.

"Energy markets remain vulnerable to both economic and geopolitical risks," said Vitol CEO Russell Hardy in a trading update on March 20. "The extreme volatility of energy markets during 2022 highlighted the importance of prudent physical and financial risk management; accordingly, we will continue to manage our business and financial position carefully and conservatively."

Vitol sees oil demand growing by 2 million b/d this year driven thanks to the continued return of China and air transport outweighing any concerns of a full-blown banking crisis. Hardy's cautious optimism is also reflected in market structure.

Backwardated market

"The oil market backdrop to the 2008 financial crisis was vastly different to that of today's financial intrigue," said Joel Hanley, global oil director at S&P Global Commodity Insights. "Crude oil prices had generally been on the rise since the end of the 1990s and this came to a head, fueled by a weak dollar from 2006 onwards, when Brent crude futures rose over $147/b in July 2008."

According to Hanley, market structure in 2008 was in very steep contango, with front-month Brent at deep discounts to the following month, leading to full land storage and hitherto unseen levels of floating storage being used.

"At one point, 22 VLCCs of crude were floating off the UK coast alone, which does not speak of a strong physical market," Hanley said. "The currency and sentiment-led overheating of the commodities markets were not always backed by physical demand, leading to a crash in oil prices of over $100/b before the end of 2008. It was then that OPEC acted to remove barrels from the market and stabilize prices. The current market has a firmer sense of economic growth and demand underpinning it, with supply volatility more likely to cause upside than down."

For others like Goldman Sachs, quick action to limit the fallout from SVB and the underlying strength of economies in major consuming countries will help markets avoid a hard landing.

"Our economists still believe that the US and Europe will avoid recession given relatively elevated capital buffers in the banking system, and ongoing policy support," the bank said in a recent note.

Click to see full-size graphic

Oil in focus as SVB and CS stoke fears of new banking crisis

OPEC+ monitors

OPEC+ has so far rebuffed any suggestion the current uncertainty concerning banks requires a rethink of its plan from last year to cut 2 million b/d from supply. However, should prices dip below the $70/b threshold it may be forced to act. Crude at these levels would also compromise the effectiveness of price caps imposed by G7 members on Russian oil.

Delegates told S&P Global on March 20 the group, which is due to hold a meeting of its Joint Ministerial Monitoring Committee next month, is likely to wait for more data to emerge before jumping to any conclusion.

In its latest oil market outlook published March 14, just days after the collapse of SVB, the OPEC Secretariat downgraded its estimate of how much crude the producer group would need to pump to balance the market, despite increasing its forecast for Chinese demand.

The call on OPEC crude will average 28.77 million b/d in the first quarter of 2023, dipping to 28.62 million b/d -- below the 28.91 million b/d that the bloc produced in February -- lending support to potential further output cuts, with output from non-OPEC producers expected to rise more than previously thought.

It added that rapidly changing economic conditions continue to warrant a cautious approach to managing oil production volumes.

"Given the ongoing high level of uncertainty with regard to the timing and extent of a full global economic recovery to pre-pandemic levels in all sectors, the OPEC and non-OPEC countries participating in the [Declaration of Cooperation] continue to carefully monitor market developments," the secretariat said.

OPEC has allied with Russia and several other key oil producers on a series of output cuts, the latest of which are scheduled to last through the end of 2023.


  • Crude

Related content


Infographic: India Elections - Oil sector to be in spotlight for India's new government

India’s role in global oil markets is set to expand at a fast pace by the end of the decade, making it the biggest hub for demand growth. Battling high prices, oil diplomacy with countries such as the US and Russia, as well as revival of flagging upstream production will be some of the key priorities for the new government. Related feature: INDIA ELECTIONS: Refining capacity, crude output, storage to top new government's oil agenda Click here for full-size infographic


Interactive: Seaborne trade in Russian oil under G7 price cap

(Latest update: May 10, 2024) Related content: Russian crude exports by non-G7 tankers hit new high in April since price cap Russia, one of the world’s largest oil suppliers, has increasingly turned to non-Western firms to transport its crude to overseas buyers during its ongoing war with Ukraine . With a dual goal of undermining Russia’s war chest without creating significant disruptions to global supplies amid inflation pressure, G7 countries and their allies have banned tanker operators, insurers and other services firms from facilitating seaborne Russian crude exports unless the barrels are sold for no more than $60/b. The price cap regime, which came into force Dec. 5, 2022, does not directly cover tankers flagged, owned and operated by companies outside the G7, the EU, Australia, Switzerland and Norway, and not insured by Western protection and indemnity clubs. While such ships tend to be older and less maintained, their share in Russia’s crude exports market has been rising in recent months amid strengthening prices of Urals -- the OPEC+ member’s flagship crude grade -- and tightening sanctions enforcement by the West. Non-price-capped tankers have a larger market share in shipping Russia’s Pacific crude exports, according to analysis of S&P Global Commodities at Sea and Maritime Intelligence Risk Suite data. Crudes such as Sokol, Sakhalin Blend, and Eastern Siberia–Pacific Ocean grades are more often involved in these trades than Russian barrels from Baltic or Black Sea ports like Urals. Tanker operators in Greece, Europe’s top shipowning nation, managed to keep their traditionally strong market position in Russia in the first few months since the price cap took effect before giving ways to their peers in the UAE, Russia, China and Hong Kong. Related content: Interactive: Global oil flow tracker


Interactive: Global oil flow tracker

(Latest update May 3, 2024) Recording changes to Russian oil exports and EU oil imports since the war in Ukraine Russia’s war in Ukraine has triggered a major upheaval in the global oil markets, forcing Moscow to find alternative buyers and Europe to source new supplies as Western sanctions seek to clamp down on Moscow’s vital oil revenues. With an EU embargo and the G7 price cap on Moscow's oil now fully in place, Russian seaborne crude exports have remained largely resilient as displaced volumes of its discounted oil flow East. Russian oil product exports have also mostly held up with new buyers in Africa absorbing Russian diesel and other fuels now banned from Europe. Related stories: Russian oil product exports slump to post-pandemic low as drone hits resume (subscriber content)


Infographic: Chasing the lowest-carbon crudes

Global oil producers are increasingly touting efforts to reduce the carbon intensity of their upstream operations to stand out as investment dollars shrink during the energy transition. Some producers see carbon intensity rankings as a measure of which fields will have staying power, while environmental groups say the efforts ignore the much larger global warming emissions created downstream when the oil is refined for transportation, shipping and petrochemicals. S&P Global Commodity Insights Analytics has expanded its carbon intensity calculations to 162 fields and 41 grades. The greenhouse gas emissions represent current operations from the wellhead to storage/export terminal. The newest expansion of fields and grades covers Central, South, and North America. South and Central American grades are shown in the infographic below.