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More on the Mystery Selloff

There were plenty of theories about yesterday’s mystery selling in the crude oil market. (via Reuters)

  • Volume and liquidity was low because of the Jewish holiday.
  • There were effects of contract expiration, where some traders “roll” to new months rather than make or take delivery.
  • There was a rumor about a possible announcement of a release from the Strategic Petroleum Reserve.

The CFTC is investigating.

After the market close today a new theory emerged. It now seems that a single large trade may have sparked the selling, leading to “technical” trades by smaller market participants and algorithmic traders. The reason behind the initial trade is still not known. It could be forced selling from a hedge fund in distress. Some think it could be a change in fundamental analysis by a big firm. If so, it was an exceptionally clumsy way to change a position!

This type of trading action attracts a lot of attention, but does not provide much insight about the underlying fundamentals of the oil market.

More to come…

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