By Peter Nurse   

-- Oil prices sharply retreated Friday, falling to their lowest levels this week on simmering concerns over the banking sector and after the U.S. government backed away from its intention to immediately refill the Strategic Petroleum Reserve.

By 09:25 ET (13:25 GMT), futures traded 2.6% lower at $68.12 a barrel, while the contract fell 2.5% to $74.12 a barrel. 

The U.S. banking industry remains under pressure as the week comes to an end despite attempts from U.S. Treasury Secretary to provide reassurance.

She reiterated on Thursday that she was prepared to take further action to ensure that Americans' bank deposits stay safe, and yet the shares of many of the small regional banks continued to drop Friday.

The tone wasn’t helped by a hefty selloff of the shares of (ETR:), suggesting possible contagion, after the cost of insuring the German lender’s debt against default jumped.

Worries are growing that the banks will curtail lending to the wider market in an attempt to hoard cash, potentially limiting economic activity.

This comes as the , the and the , among others, have continued raising interest rates in their long-running battle against inflation. 

Also weighing on the market were comments from U.S. Energy Secretary Jennifer Granholm late Thursday that it will be “difficult” to refill government oil reserves this year, which it had depleted last year to take the edge off spiking world energy prices.

The Biden administration had previously indicated that it will begin restocking inventories, which are currently at their lowest level since 1983, if prices traded around $67 to $72 a barrel.

That said, oil prices are still set to rise between 1% and 2% this week, helped by weakness in the U.S. currency.

The fell to a seven-week low earlier this week, making commodities which are denominated in dollars, like crude, cheaper for foreign buyers.

On the supply side, the OPEC’s monitoring committee, which can recommend a change in output, next meets in early April.

A Reuters report suggested that the cartel will keep production unchanged during that meeting, waiting for financial markets to calm before deciding upon future output levels.