Oil pump jacks at Vaca Muerta in Argentina
Oil pump jacks are seen at the Vaca Muerta shale oil and gas deposit in the Patagonian province of Neuquen, Argentina, January 21, 2019. Reuters

Oil prices fell about 1% to a five-week low on Tuesday as the collapse of Silicon Valley Bank, a U.S. bank, sparked fears of a fresh financial crisis that could reduce future oil demand.

Brent futures were down 51 cents, or 0.6%, to $80.26 a barrel by 11:36 a.m. EDT (1536 GMT), while U.S. West Texas Intermediate (WTI) crude fell 56 cents, or 0.8%, to $74.24.

That puts Brent on track for its lowest close since Feb. 3 and WTI on track for its lowest close since Feb. 22.

Shockwaves from Silicon Valley Bank's collapse triggered big moves in bank shares on Tuesday as investors fretted over the financial health of some lenders, in spite of assurances from U.S. President Joe Biden and other global policymakers.

The oil "complex is drafting back down to around yesterday's low off U.S. dollar strength and mounting U.S. financial concerns," analysts at energy consulting firm Ritterbusch and Associates told customers in a note.

U.S. consumer prices increased solidly in February as Americans faced persistently higher costs for rents and food, posing a dilemma for the Federal Reserve (Fed), whose fight against inflation has been complicated by the collapse of two regional banks.

Wall Street's main stock indexes, meanwhile, rose as investors bet the consumer price data and the bank failures would cause the Fed to increase interest rates by a smaller amount than previously expected at its next meeting.

The Fed is now seen raising its benchmark rate by just a quarter of a percentage point next week, down from a previously expected 50-basis points, and delivering another hike of the same size in May. The Fed's next two-day meeting starts next Tuesday.

The U.S. central bank uses higher interest rates to reduce inflation. But those higher rates increase consumer borrowing costs, which can slow the economy and reduce demand for oil.

The U.S. dollar edged higher in calmer trading on Tuesday, after tumbling on Monday following the collapse of Silicon Valley Bank.

A stronger dollar can cut oil demand by making crude more expensive for holders of other currencies.

Tuesday's crude price decline also came ahead of U.S. data expected to show energy firms added about 0.6 million barrels of oil to crude stockpiles during the week ended March 10. [EIA/S] [API/S] [ENERGYUSA] [ENERGYAPI]

The American Petroleum Institute (API), an industry group, will publish its inventory data at 4:30 p.m. EDT on Tuesday and the U.S. Energy Information Administration at 10:30 a.m. on Wednesday.

Limiting crude's price decline was a monthly report from the Organization of the Petroleum Exporting Countries (OPEC) projecting higher oil demand in China, the world's biggest oil importer, in 2023.

Chinese consumers, unshackled from COVID-19 restrictions, are returning to hotels, restaurants and some shops, but they are choosy about what they buy, disappointing hopes for an immediate post-pandemic splurge.

OPEC, however, left unchanged its forecast for world oil demand to increase by 2.32 million barrels per day, or 2.3%, in 2023.

The International Energy Agency (IEA) will publish its monthly report on Wednesday. [IEA/S]