Yesterday, the price of crude oil dropped about 10%. This will not bring any immediately relief to motorists, nor does it mean that a bear market has started in the trading pits. The sell-off did not come from the killing of Usama bin Laden (or it would have happened on Monday), nor did any survey, report or downgrade come out to undermine prices. The market merely decided oil was a sell rather than a buy.
For the record, West Texas Intermediate crude closed Wednesday at $110 or so a barrel. WTI ended Thursday under $100, dipping below $97 during trading. Brent crude, which is the European standard and costs a bit more than WTI, lost $12 at one stage, hitting $108 a barrel. This morning, prices are continuing weak in the energy complex and across the commodity world.
Reuters is reporting, “The Standard & Poor’s GSCI Index of 24 raw materials fell as much as 3.6 percent to 658.93 points, and was at 672.25 as of 10:20 a.m. in London. The gauge fell 11.4 percent in five days, the longest losing streak since August. Crude oil slumped as much as 5.2 percent, silver futures 5.4 percent and copper for three month delivery 1.8 percent. Even after this week’s plunge, the S&P GSCI index is still 6.4 percent higher for the year.”
“It’s panic,” said Michael Shaoul, chairman of Marketfield Asset Management, which oversees $1 billion in New York. “It’s not a global financial crisis. It’s a classic liquidation move in a crowded trade.”
Aggravating that is computerized trading. The Wall Street Journal says, “High-frequency traders now account for 28% of the total volume in the futures markets, which include currencies and commodities, up from 22% in 2009, according to data from Aite Group, a Boston-based research firm. These traders now account for 53% of stock-market trading volume, down from 61% in 2009, according to data from Tabb Group.”
There’s a saying on Wall Street, “Sell in May and go away.” So, why did oil prices suddenly drop? The markets were up, the bulls were in the black, and you never go broke booking a profit. Once it started, selling became a fad. Markets are like that sometimes.
