Oil prices fall further after shock plunge

In this Sept. 10, 2012, photo gasoline prices are displayed at a Mobil station in Needham, Massachusetts. World oil prices slid on Tuesday, Sept. 18, 2012, as investor sentiment was marred by global economic concerns, one day after the market experienced a sudden and mysterious plunge, dealers said. AP PHOTO/STEVEN SENNE

LONDON—World oil prices slid on Tuesday as investor sentiment was marred by global economic concerns, one day after the market experienced a sudden and mysterious plunge, dealers said.

Brent North Sea crude for delivery in November dropped 34 cents to $113.45 a barrel in late afternoon London trading.

New York’s main contract, West Texas Intermediate (WTI) or light sweet crude for October, pulled back 31 cents to $96.31 a barrel.

“The sudden sharp decline in crude oil prices late last night in New York remains a mystery today,” said CMC Markets analyst Michael Hewson.

“However, the fact is that a slowing growth outlook is never a particularly good environment for crude prices, given that a rise in prices merely exacerbates economic problems.

“For that reason the decision to embark on unlimited bond purchases remains a risky one on the part of the Federal Reserve.”

In unusually volatile deals, Brent and WTI oil prices suddenly tumbled by about $4 in intraday trade late on Monday.

“Yesterday saw a mysterious drop in oil prices: within just a few minutes, WTI and Brent both fell for no apparent reason – without there being any impetus from the currency side, from the equity markets or in terms of other news,” said Commerzbank analyst Carsten Fritsch.

“Such pronounced price fluctuations give rise to criticism of high-frequency trading and the excessive influence of speculative investors on the most important commodity, and are likely to be closely monitored by policy-makers and stock exchange regulators.”

Some market watchers suggested that the price slump could be the result of a so-called “fat finger” trading error.

Traders had also been spooked by market rumors that US President Barack Obama’s administration would release strategic supplies of gasoline (petrol) to lower prices ahead of the November 6 election.

Hewson added: “Speculation about a possible release of reserves from the SPR [Strategic Petroleum Reserve] remains on the table.

“In any case, even if plans were imminent, US officials are unlikely to sell into a rising market, releasing reserves two months before an election would undoubtedly raise political questions.”

Analysts at the Vienna-based consultancy JBC Energy argued that many traders were taking profits, after the market had spiked higher last week on news of the US Federal Reserve’s new economic stimulus.

Oil had surged last week to four-month highs after the Fed embarked upon a third phase of quantitative easing or QE3 to boost the US economy – which is the world’s top crude consuming nation.

“The fact that the sell-off occurred on both exchanges implies that this was no technical glitch, but rather a profit-taking strategy by major market participants that were worried about a price correction,” JBC analysts said.

“Adding further credence to this view is the fact that as of this morning the markets have been trading below yesterday’s settlement.

“In fact, the speculative phase of QE3 can be viewed as largely responsible for the gains in crude prices over August.”