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Oil’s Tumble to 15-Month Low Accelerated by Algos, Options Moves

Oil extended its plunge as an unfolding banking crisis combined with supply-glut fears to fuel a wave of technical selling. 
Bloomberg
By Bloomberg
15 Mar
New Harmony Oil Field As White House Mulls Fuel Export Limits Petroleum storage tanks at the New Harmony Oil Field in Grayville, Illinois, US, on Sunday, June 19, 2022. Top Biden administration officials are weighing limits on exports of fuel as the White House struggles to contain gasoline prices that have topped $5 per gallon. Photographer: Luke Sharrett/Bloomberg

Both West Texas Intermediate and Brent crude tumbled to 15-month lows, with banking-sector turmoil driving investors — including trend-based traders — from risky assets. Also accelerating the selloff, according to UBS Switzerland AG, is a strategy called delta hedging, in which financial institutions limit their exposure to falling prices in the options market by dumping crude futures.

Oil’s three-day rout comes as the global market teeters into oversupplied territory. US crude stockpiles are expanding again, OPEC production rose in February and Russian exports remain resilient in the face of sanctions. The International Energy Agency now expects supply to exceed demand in the first half of the year.

“Bears are in charge here,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth. “There is just a massive amount of fear in the market.”

Oil Extends Losses as Banking Sector Woes Spill Over | WTI prices fall under $67 a barrel in the New York morning
Prices:
  • WTI for April delivery fell $4.63 to $66.70 a barrel at 12:19 p.m. in New York
  • Brent for May settlement dropped $5.10 to $72.35 a barrel

The latest slide is the deepest since June 2022, with prices finally breaking out of a $10 trading range. So far this year, traders have been in wait-and-see mode, balancing aggressive monetary tightening from the Fed with optimism around China’s demand recovery. This week’s retreat sent the US benchmark into oversold territory on its 14-day relative strength index.

December lows around $65 dollars a barrel should provide support to oil markets, said Matt Maley, chief market strategist at Miller Tabak + Co.

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