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Brent oil prices logged losses Monday, dropping below $72 per barrel in intraday trade amid turmoil in the banking sector.

The Brent contract with May delivery was trading at $71.64 per barrel at 11:00 London time, down by $1.33 per barrel from the Friday close. The front-month April WTI Nymex was at $65.52 per barrel, lower by $1.22 per barrel from the previous settlement.

Oil prices have come under pressure from a crisis in the Western banking sector, which has seen the downfall of tech startup-focused Silicon Valley Bank and the takeover of embattled Credit Suisse by Swiss rival UBS in the span of two weeks. Two sources within the influential OPEC+ alliance signaled to CNBC at the end of last week that banking uncertainty was feeding into fears of another financial collapse to the tune of the 2008 crisis.

OPEC+ delegates could only comment on condition of anonymity, as they are not allowed to publicly discuss the topic.

One of the sources noted that the drop was likely temporary and not underpinned by supply-demand fundamentals surrounding the physical commodity, but stressed the need to monitor the potential effect on central bank interest rate decisions and inflation. The European Central Bank pressed ahead with a further rate hike of 50 basis points on March 16, while the U.S. Federal Reserve is due to reach its own rate decision this week.

Over the past year, OPEC+ has championed stability in the oil price landscape to encourage long-term investment in spare capacity and avoid supply shortages. An OPEC+ ministerial technical committee is next set to adjourn on April 3.

In a note dated March 15, UBS analysts indicated that the wider financial market turbulence was unlikely to affect crude oil production rates, but flagged that “during periods of elevated volatility, investors tend to pull out of risky assets like oil and invest in safer corners of the market.”

It added that the options market is now intensifying the decline in oil prices through delta-hedging plays. 

Citing “banking stress, recession fears, and an exodus of investor flows,” analysts at Goldman Sachs on March 18 cut their oil price outlook, now expecting Brent prices to hit $94 per barrel in the upcoming 12 months and $97 per barrel over the second half of 2024 — compared with previous projections at $100 per barrel for both periods.

“Our adjustment also reflects somewhat softer fundamentals, namely higher-than-expected near-term inventories, moderately lower demand, and modestly higher non-OPEC supply,” Goldman Sachs said.

Questions linger over the potential demand boost from a reopening China — the world’s largest importer of crude oil, whose buying was reined in for much of last year by Covid-19 restrictions.

Paris-based watchdog the International Energy Agency nevertheless said in the March issue of its monthly Oil Market Report that it expects world oil demand growth to “accelerate sharply over the course of 2023,” seeing “rebounding air traffic and the release of pent-up Chinese demand dominate the recovery.”

The supply picture has stayed muddied by Russia, whose oil flows have been choked by Western sanctions implemented against its seaborne crude and oil products in December and February, respectively. Moscow announced a unilateral 500,000 barrels per day cut in its crude output in March, announced by Deputy Prime Minister Alexander Novak on Feb. 10.

It remains to be seen whether Russia’s declines will be long term or are the product of technical difficulties to sustain field production rates following the winter cold, one OPEC+ delegate told CNBC last week. According to the state Saudi Press Agency, Saudi energy minister Prince Abdulaziz bin Salman received Novak in Riyadh on March 16, with both countries reaffirming their commitment to the OPEC+ policy of removing a combined 2 million barrels per day of production from the markets until the end of 2023, agreed in October.

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