Wednesday, September 26, 2012

Looking for the Cause Behind the Wild Fluctuations in Oil Prices

Can the wild swings in the price of oil over the last few weeks have anything to do with supply and demand?


The Wall Street Journal carried this account last week:

Oil prices dropped more than $3 in less than a minute late in the trading day on Monday, just as trading volume spiked. The move also dragged down prices of gold, copper and even the euro.
"Traders were looking like deer in the headlights," said Peter Donovan, a floor trader at Vantage Trading on the New York Mercantile Exchange. "I called four different desks, and they all said, 'we don't know.' "

The move came at about 1:54 p.m. EDT. West Texas Intermediate crude for October delivery plummeted to $94.83 a barrel on the Nymex, from more than $98. Some 12,500 contracts changed hands in a minute, compared with less than 500 a minute previously.

The move sparked talk of an erroneous trade—called a "fat-finger" error in industry parlance—or a computer algorithm gone awry.

Fat finger or no, there was an even bigger drop on Wednesday, leaving the price of West Texas Intermediate well below where it had been prior to Fed Chair Ben Bernanke's Jackson Hole speech on August 31 and the Fed's announcement of QE3 on September 13.

Read more: http://oilprice.com/Energy/Oil-Prices/Looking-for-the-Cause-Behind-the-Wild-Fluctuations-in-Oil-Prices.html

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