The unusual, and yet totally unexplained, drop in the price of oil on Monday has created some serious shake outs in the price and the trends in oil. With NYMEX WTI crude reaching to just over $100.25 on Friday, oil was still between $99.00 and $99.50 on Monday before the rug came out from under oil’s footing. Selling pressure started and then the price drop went from $98.75 down to under $96.00 in literally minutes.
Speculation was that the Obama administration was considering a tapping effort of the strategic petroleum reserve. That was effectively refuted, even if it was called an option that can be used. Then the fat-finger trading error seemed to be the cause, but the trading volume did not support the price action. Traders and market pundits have been all over the media late yesterday and this morning saying that the sell-off was not supported by the volume. Now some talk seems to be around an options expiration date in oil, but there may have been a natural inflection point as the largest culprit.
A chart review shows that there would have likely been many stop-gap and program levels hit after oil challenged $98.50 per barrel. The drop seems unusually high for such a simple explanation, but a break under $98.50 or so sure looks like it would have triggered many exits all running for the door at once.
United States Oil (NYSEMKT: USO) tanked with oil on Monday, but the exchange traded product is up over 0.3% at $35.87 in late-morning trading.
It was north noting that Credit Suisse lowered its ratings to Neutral from Outperform on the independent refining sector. The firm downgraded Delek US Holdings Inc. (NYSE: DK) and its shares fell almost 5% on the day. Marathon Petroleum Corp. (NYSE: MPC), Phillips 66 (NYSE: PSX) and Western Refining Inc. (NYSE: WNR) were all also cut to Neutral, and these are all down about 1.5% to 2.5% after the downgrades.
The integrated oil and gas giants are not quite as fast to react to oil prices. Exxon Mobil Corp. (NYSE: XOM) ticked down yesterday but shares are up 0.3% at $92.18 so far today, and it is important to realize that the year-high is only $92.50.
JON C. OGG