Default Contagion Fears Hit Brent Prices Hard - Rigzone News

Default Contagion Fears Hit Brent Prices Hard | Rigzone

Default Contagion Fears Hit Brent Prices Hard

Default contagion fears have certainly hit Brent prices hard as traders assess the risk that Silicon Valley Bank (SVB) becomes the second coming of Lehman Brothers, Al Salazar, the Senior Vice President of Enverus Intelligence Research, told Rigzone.

Salazar added, however, that “we have seen this movie before” and said significant defaults/credit events - such as S&P’s 2011 downgrade of U.S. debt, the 2012 Greek sovereign debt crisis and various Chinese property/solar defaults – “have contributed to pockets of oil price weakness, only to be dismissed by more relevant oil fundamental drivers months later”.

“On the surface, SVB feels like an air pocket, while surging Chinese and Indian oil demand are more durable influences on oil,” Salazar said.

Sarp Ozkan, the Vice President of Commercial Product at Enverus, said, “SVB was a large project finance provider for what they broadly referred to as climate-tech”.

“From their lending to large residential solar developer Sunrun to its broad reach in the community solar space (62 percent of financings to date) they were a committed investor in the space. They also provided a lot of capital to even early stage projects and portfolios across solar, wind, battery storage, and other relevant energy transition tech,” Ozkan added.

“Of course, SVB’s fortunes were in no way a direct consequence of their interest or activity in this space, but it certainly causes a headache in the sector as a sizeable financier exits the market,” Ozkan continued.

Silicon Valley Bank

On March 10, the Federal Deposit Insurance Corporation (FDIC) announced that Silicon Valley Bank in Santa Clara, California, was closed by the California Department of Financial Protection and Innovation, which it said appointed FDIC as receiver.

“To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank,” FDIC said in an organization statement.

“All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023,” the organization added.

Silicon Valley Bank had 17 branches in California and Massachusetts, FDIC highlighted, adding that, as of December 31, 2022, the bank had $209.0 billion in total assets and about $175.4 billion in total deposits. FDIC highlighted in its statement that Silicon Valley Bank is the first FDIC–insured institution to fail this year. The last FDIC–insured institution to close was Almena State Bank, Almena, Kansas, on October 23, 2020, FDIC pointed out.

Brent Price

At the time of writing, the price of Brent crude oil is trading at $75.55 per barrel. The Brent price dropped from a close of $82.78 per barrel on March 10 to a close of $72.97 per barrel on March 17. The March 17 close is the lowest, so far, in 2023 for Brent. The commodity’s highest 2023 close, so far, was seen on January 23, at $88.19 per barrel.

To contact the author, email andreas.exarheas@rigzone.com

Photo Credit – iStock.com/Christian Horz
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