Rapid
plunge in oil futures leaves traders guessing
Four
minutes of hectic high volume activity that sheered $4 off the price
of oil late Monday left traders, analysts and U.S. regulators looking
for the cause of one of the fastest and most furious energy market
routs in recent years.
17
Sepetmber, 2012
In
the absence of any major headline news that could have explained the
drop, which hit both international benchmark Brent crude and U.S. oil
futures, many traders and analysts speculated that the dramatic drop
could have been caused by an incorrectly entered trade -- a "fat
finger error" -- or a high frequency trading program gone wrong.
Another
potential cause -- rumors of a possible release of oil by the United
States from its strategic reserve to bring down prices -- appeared to
have been countered by quick government denials of such a move.
Federal
regulator the Commodity Futures Trading Commission (CFTC) is "looking
into" the quick price drop, said commissioner Scott O'Malia, and
has contacted exchange operators the CME Group (CME.O) and the
IntercontinentalExchange Inc (ICE.N).
ICE's
Front-month November Brent crude, which had opened at $116.67 a
barrel, at one point had plunged $5.17 a barrel to $111.50. It fell
more by $3.60 a barrel in a three-minute period between 1:52 p.m. and
1:55 p.m. EDT. From nearly one minute to the next, volume of trading
spiked. <O/R>
Between
1:51 and 1:52 p.m. EDT, 151 lots of front-month October U.S. crude
traded on the New York Mercantile Exchange, which is owned by CME
Group, according to Reuters data. Three minutes later, volume spiked
above 13,000 lots within a minute, more than 100 times higher than
minutes before.
U.S.
crude futures plunged in that time, although not as sharply London's
Brent market. Brent began to recover after a sharp 3-minute drop,
with Brent crude settling at $113.79 a barrel, off $2.87 on the day,
having dropped as low as $111.50. U.S. crude settled at $96.62 a
barrel, off the low of $94.65.
Volatility
is common in oil trading, and headlines that suggests a significant
change in oil supply balances -- whether due to refinery outages,
rising oil production or falling oil demand -- can sometimes quickly
move oil prices within seconds.
"All
of a sudden it just dropped, then it snapped right back up. Then you
had 50-to-75-cent moves, so you saw guys just stay away from it. From
there it was just a barrage of rumors," said John Woods
president of JJ Woods & Associates, a brokerage on the floor of
the New York Mercantile Exchange (NYMEX).
"Everybody
was asking the same thing: What the hell is going on here?"
Rapid
and rapid price moves over a very short period of time with no clear
cause -- such as the one seen on Monday -- remain relatively rare.
During
intra-day trading on May 5, 2011, U.S. oil futures plunged at times
by as much as $13 a barrel and closed down by $10 a barrel. Many
traders then blamed waves of computer-driven selling by banks and
hedge funds for much of the drop, in the absence of any major news
that could have explained it otherwise.
CME
SAYS NO TECHNICAL GLITCH
The
CME Group said it had not experienced any technical failures and that
it would not cancel any oil market trades during price drop. The
exchange said that energy markets including crude, gasoline and
heating oil futures "saw a coordinated sell-off of a prolonged
duration of 30 minutes" beginning around 1:50 p.m. in New York.
The
Intercontinental Exchange, whose ICE platform is the biggest venue
for trading Brent Futures, declined comment.
Traders
and energy analysts offered several speculative explanations for the
brusk fall, but none could immediately be substantiated, including a
"fat finger" incident by a major crude trader. Reuters was
not able to identify any potential culprit.
Another
explanation was a sell off led by algorithms programmed into
super-computers, which many large hedge funds and banks use for oil
trading, which could have been triggered by technical factors and
then exacerbated by a lack of liquidity due to traders off for the
Rosh Hashanah holiday.
Other
potential causes for the drop were mostly dismissed. The White House
said it had made no decision on whether it could release barrels from
the U.S. Strategic Petroleum Reserve, a possibility that has been
closely watched by traders in recent weeks, after a Gulf Coast
hurricane reduced U.S. oil production and amid threats of more supply
disruptions from sanctions-prone Iran.
An
SPR release remains an option "on the table," the White
House said on Monday, but no decision has been made and it had no
further announcement after crude prices fell in the afternoon.
One
veteran energy markets risk manager said the abrupt crude price fall
in the course of just seconds in New York trading on Monday afternoon
was "the fastest move I've ever seen."
"I
think it was too fast to be anything but HFT (high-frequency trading)
or other algos (algorithmic traders). We just don't know right now,
but that's my gut feeling," said John Gretzinger at INTL-FCStone
in Kansas City.
No comments:
Post a Comment
Note: only a member of this blog may post a comment.