The oil complex settled sharply lower Monday after a sudden late-day selloff, with analysts not sure what to make of the major downturn in prices.
NYMEX October crude futures settled $2.38 lower at $96.62/barrel. ICE November Brent settled $2.87 lower at $113.89/b.
The selloff was sudden, with October crude tumbling in less than a minute to $94.83/b at 1:54 p.m. EDT from $97.85/b. Volume jumped to 12,604 lots during that drop, from 2,314 lots.
However, crude trades below the $95/b level were light in volume. Refined product volumes picked up as well over the same time period. NYMEX October heating oil fell to $3.0923/gal from $3.1756/gal over a one-minute period in which volume jumped to 1,596 lots from 410 lots.
RBOB settled 7.23 cents lower at $2.9433/gal. Heating oil settled 7.61 cents lower at $3.1634/gal.
While the market has been expecting a possible release of crude from the Strategic Petroleum Reserve, no fresh developments were seen on that front Monday, Price Futures Group analyst Phil Flynn said. Rather, someone was likely selling futures because of losses in the options market, he said.
A drawdown of the US emergency oil stockpile is looking increasingly likely as economic and political pressures converge to enable the Obama administration to justify a release, analysts said Friday.
But if the White House decides to proceed with a sale from the SPR, volumes are unlikely to be anywhere near the 180 million barrels suggested in some media reports, they added.
Instead, Flynn attributed Monday's selloff to a combination of light volume during the Jewish Rosh Hashanah holiday and crude options expiration.
"We haven't seen any headlines," Flynn said shortly after the selloff.
"It may be as simple as a wave in profit-taking, but perhaps someone said something about an SPR release," said Bill O'Grady at Confluence Investment Management.
However, others were not convinced. "An SPR rumor wouldn't trigger this kind of volume, which has been much more than a rumor on SPR would have taken it [down]. And if it were SPR-related, we would still be going down," said Carl Larry, president at Oil Outlooks and Opinions.
Meanwhile, there was no talk of any SPR release at a press briefing on Air Force One Monday, according to a transcript.
"The pullback today might be a delayed reaction to last week's [FOMC announced] stimulus, but there has been no sea change, no new buying today," said Gene McGillian, an analyst and broker with Tradition Energy. "With thin conditions, the market is a little more vulnerable."
Other analysts suggested that the selloff was typical of an algorithmic trade gone wrong. "This drop had characteristics of a flash crash, some 'algo' gone haywire, and it didn't seem to be spurred by anything specific," said Kyle Cooper of IAF Advisors.
Similarly, EOXLive analyst Tom Pawlicki said the drop was reminiscent of flash crashes, as much of the complex seemed to fall at the same time. "But there was no change in the Brent-WTI spread, which tells me they both fell around the same time by around the same amount," he added.
In a speech last week at a petroleum association meeting in Connecticut, CFTC Commissioner Bart Chilton criticized high frequency traders for increasing volatility in markets and creating only "fleeting liquidity" since they may hold positions for seconds.
CME Group spokesman Chris Grams said while the exchange was aware of the late day selloff in petroleum futures, "we are not aware of any technical issues at this time. CME markets performed as designed."
