Four minutes of hectic high volume trading sheared $4 off the price of oil late Monday and left traders and US regulators hunting for the cause of one of the fastest and most furious energy market routs in recent years.
In the absence of any major headline news that could have explained the drop, which hit both international benchmark Brent crude and US oil futures, traders and analysts speculated it may have been caused by an incorrectly entered trade — a “fat finger” error — or a high frequency computer trading program gone awry.
The White House doused market speculation that it was ready to approve an oil release from the US strategic petroleum reserve (SPR) to bring down prices, although it said the option remains “on the table.”
The kind of speedy price decline that hit oil on Monday is more typically associated with unexpected economic news, such as a dismal US unemployment figure or a surprise production boost by Opec countries. There were no such headlines on Monday.
Federal regulator the Commodity Futures Trading Commission (CFTC) is “looking into” the price drop, said commissioner Scott O’Malia, and has contacted exchange operators the CME Group and the IntercontinentalExchange.
“Our people are aware of it,” said O’Malia. “They are “going to get to the bottom of it.”
ICE’s Front-month November Brent crude, which had opened at $116.67 a barrel, at one point fell by as much as $5.17 a barrel to $111.50. US. crude futures also fell sharply. In the minute before that plunge, 151 lots of front-month October US crude exchanged hands on the New York Mercantile Exchange. Three minutes later, volume spiked nearly a hundredfold, to above 13,000 lots in one minute.
European benchmark Brent began to recover after its sharp drop, and later settled down $2.87 on the day at $113.79 a barrel. US crude settled at $96.62 a barrel, up from earlier lows of $94.65.
“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 NYMEX floor.
“Everybody was asking the same thing: What the hell is going on here?”
Some analysts say that rapid and sharp price moves over a
very short period of time and with no clear cause are becoming more