Oil plunges as commodity traders unwind positions

WTI Crude Oil fell below close to $99 a barrel yesterday whilst Brent crude oil fell to a low of $109 a barrel, down $12 or 10 per cent, its largest decline in more than 2 years. As well as oil itself, oil shares were also hit hard, particularly those in a more speculative position.

After the 23% fall in Silver, speculators dumped oil futures on worries about the end of the commodity bull market, the strength of the global recovery and how long the US dollar would keep falling. Any sign that the US dollar might turn from its 3 year low would mean that the price of dollar demoninated commodities would decline. Continued concerns that China will raise interest rates to stifle inflation will kill off demand is also on traders minds. The large falls were exacerbated by margin selling. 

The FT said this morning that “Some analysts said markets could rebound rapidly, as they have done after similar corrections over the past year. While high prices are denting demand, miners, oil groups and farmers have struggled to boost supply to resolve tightness in the market.”