Benchmark crude closed at $96.62 a barrel, down $2.38 or -2.4%. Oil had its biggest intraday swing since early June, hitting a low of $94.65 a barrel, after trading at a session high of $99.52 Monday morning, failing to break through the $100 key technical level.
The drop in U.S. crude was not as deep as the sell-off in Brent crude oil, which sank from $115.20 a barrel at 1:52 p.m. to $111.60 just 180 seconds later as trading volumes spiked despite the usually quiet Rosh Hashanah holiday. Brent crude settled down $2.87, or -2.5%, to $113.79 a barrel. Energy prices had spent the majority of the session trading marginally higher, with support from geopolitical tensions from around the world.
There is speculation among traders that a potential ‘fat-finger’ trade is responsible for the selling as prices rapidly fell more than $4 in just 20 minutes. There are also rumors of a strategic oil-reserve release. These rumors most likely derived from a report done by Reuters on the Obama administration considering a release much larger than the 30 million barrels from last year. However, the White House has denied these rumors with an official stating, “all options remain on the table, but we have nothing to announce at this time.”
Some analysts simply suggested the price of oil had gotten too high given continued weakness in the global economy, and it’s due for a correction.
Energy traders have enjoyed solid gains in the month of August with Crude-oil prices on the NYMEX up 8.7% from Aug. 1, and Brent crude gaining 7.7% over that period. Oil recently traded to a high above $100 on Friday partly on concerns that the tension in roiling parts of the Middle East and North Africa could trigger supply disruptions. Enthusiasm in the oil markets may soon fade however, due to an increasing negative outlook on global demand and high inventory levels.
Perhaps the euphoria over the Fed has worn off.
Crude spent much of the European session in the red, with the October contract off 52 cents, or -0.5%, to $96.10 a barrel.
Ciro J. Lama is currently an undergraduate studying Finance at the Zicklin School of Business – Baruch College
Twitter: @TraderCantalino
Website: CantalinoAssetManagement.com