[deconstructionist]

http://money.cnn.com/2005/08/17/markets/oil/index.htm

The article above by CNN Money offers some explanation. Anybody here have any other insights or info? Of course prices go up and down over time, but almost 5% in one day has me curious...

[smiley]

I'm a bit puzzled myself. One thing I can think of is that the contract is close to expiring. This is the safest moment to sell, just in case there is a rush to the door.

Another thing could be the PPI report. It seems that the oil prices are taking their toll on the economy. An economic slowdown would slash the demand projections.

[crude_intentions]

Probably getting ready for the next big run up to get to the $70-75 range.

[BrownDog]

I agree that it's odd, and I don't know the reason. I'd like to see a better reason than what's in the current news.

I do take this price drop as a reminder that short term fluctuations in the price of crude oil don't tell us much with regard to the bigger issue of PO.

[jimmydean]

Probably just some profit taking as oil has had a decent run the past couple of weeks.

http://www.msnbc.msn.com/id/5612507/

Prices will probably go higher especially after we see how much lower August reserves are for gas/oil compared to 2004.

[rockdoc123]

I posted this elsewhere but I wonder if it's that we are almost at shoulder season...end of heavy gasoline consumption and prior to start of heating season. Traditionally oil share prices have dropped during this period.

[MicroHydro]

The more interesting story is the sharp drop in gold prices for no good reason. These usually turn out to be due to central bank gold sales, disguised as 'loans' to investment banks.

That raises the question of whether the US has adopted a similar tactic for cooling bull markets in oil. Perhaps key traders are being 'loaned' oil from the strategic reserve to dump on the market?

Twin sharp drops in oil and gold could be intended to create 'shock and awe' amongst the bulls and damage market psychology. If that is the plan, look for another drop tomorrow. You have to drop the price 10% to knock out the margin investors.

[smiley]

Maybe they were paying attention to the CNN poll today.

$this->bbcode_second_pass_quote('', 'A')t what point will high gas prices curtail your driving?
Now 46%
At $3 a gallon 18%
At $4 a gallon 17%
Never 18%

[strider3700]

Microhydro you're one paranoid individual. I also happen to believe you're correct. Nothing I saw today says sell on oil yet we had it drove down.

[DantesPeak]

Because of low margin requirements, and the particpation of a new group of speculators such as gasoline dealers, the market is subject to wild, sometimes unexplained price swings. There are also many the pile onto trends - up or down.

As PO draws ever closer, one hurricane in the Gulf of Mexico or worse yet, a missle going into or out of Iran, and prices will be much higher. In the latter case, I think the price will be well past $100.

[CARVER]

I just read that the drop in oil prices was likely the result of concerns about demand destruction caused by the high oil prices. Some hedgefunds got out.

The American Petroleum Institute reported that oil demand in July dropped 3% compared to July 2004. Link to summary

$this->bbcode_second_pass_quote('', 'T')otal domestic petroleum deliveries in July experienced the largest year-to-year drop for this measure of U.S. demand in three-and-a-half years. Deliveries dropped 3 percent for July versus a year earlier. Gasoline deliveries, in particular, fell 0.8 percent under the influence of higher retail prices. Contrasting with 2004, when gasoline deliveries had risen nearly 2 percent, deliveries for the year to date in 2005 have been nearly flat.

Residual fuel oil deliveries were also down because of apparent fuel switching to other fuels by electric utilities and industrial users in the face of higher petroleum prices. Resid deliveries fell 27 percent for the month. However, deliveries of distillate fuel oil and jet fuel both continued to show increases.
...

[advancedatheist]

You have to wonder whether we even need all these middlemen in the oil distribution system. If they perform such a valuable service, why do we not notice the cessation of their activities over weekends, especially the three-day ones? And if the price fluctuations indicate that they keep mistakenly reading the oil supply situation, again, why do we need them if they consistently make such serious errors?

[whiteknight]

People who invest in the futures market also vote in national elections. If they could manage a screwup like Bush, why not screwup on oil and gold sales? The "market" is not a wise creature, in fact it is more superstitious than a barrel full of Witch Doctors. Dont read too much into shor tterm changes, watch the fundimentals and look for long term trends. look for rising floors and ceilings for your indications of market value.

Oh, and take advantage, buy low sell high.

[fossil_fuel]

NYMEX oil trading goes on-after hours. not sure about weekends though.

today was a bad day for me. my recently-acquired oil and nat gas stock option$ lost thousand$. wish i had some liquid cash to buy more, but right now my cash is going to have to pay for school expenses.

[seldom_seen]

If you ignore the daily peaks and valleys, and look at oil prices say over the last year, you'll see oil is on a trajectory towards the moon.

66/barrel or whatever it's at was high last week and high this week. Remember the price went up like a dollar/day last week.

[advancedatheist]

$this->bbcode_second_pass_quote('whiteknight', 'P')eople who invest in the futures market also vote in national elections.

[DantesPeak]

The API figures do not agree with the DOE figures, which show that gasoline demand went up over the last four weeks.

On the other hand, API shows lower oil production than the DOE. I am not sure whose figures are better.

[pup55]

Yesterday is just the kind of day that drives you nuts if you are a commodity trader.

You have a strong uptrend, going on for the last week or two, plus have a bullish report come out that says inventories are shrinking and refinery utilization is dropping because there are so may outages, etc. so you go long,and the market drops like a rock and you are stopped out of the market. At 1000 barrels per contract, the average little guy commodity trader with a $2500 account got his whole account wiped out yesterday.

There are several things going on:

First of all, the simplest answer is that people decided to take profits. This market had run up 20% in about two weeks, so people took some money off the table.

Secondly, you have to remember that you are in the same market as the Govt of Saudi Arabia, the Govt of Russia, Dow Chemical, who has to buy feedstock, plus large speculators, hedge funds, etc. These guys hold many hundred simultaneous long and short positions at any given time, and are always looking for an opportunity to swing the market one way or the other to make a fast buck. So, in a market like this, where there are relatively few players, pretty easy to cause a stampede by dumping some oil on the market, then buy it back two dollars cheaper a day or two later. This is a common practice in the "less liquid" markets like cotton.

Thirdly, as Leanan pointed out the other day, we are approaching the option expiry date for September (the "triple witching hour") and so the people that use options to protect themselves against the price falling will have their options expire, and so they have to get out of their September contract at some point. So, some of this probably aggravated the stampede somewhat. The volume for the October contract was about twice as much as for the September at this point. But, the October did not fall quite as much.

Fourthly, it is too much a coincidence that the market takes this drop on the same day that Saudi comes out with some glowing press release saying they are going to increase their production by X amount over the next two years. So, if you are Saudi, it is easy for you to do this press release, then simultaneously dump a lot of oil on the market, the price falls, the business section of the paper the following morning says "remain calm, all is well", and all of the CEO's say "see, this oil crisis is just overblown, business as usual". The problem with this strategy, of course, is that it will only work for so long.

Fifthly, maybe there is some sense to the ostensible reason that was mentioned earlier: Maybe the economy really is slowing down, and people don't need the oil.

[falser]

I too think the selloff will be short-lived. Even if US demand falls slightly I hardly think China and India will care one bit.