Oil closed at a 15-month low as a wave of technical selling and options covering accelerated a three-day slide.
(Bloomberg) — Oil closed at a 15-month low as a wave of technical selling and options covering accelerated a three-day slide.
The US benchmark plunged more than 5% Tuesday, plagued by banking-sector turmoil that’s eroding oil-demand optimism. Adding to the chaos, financial firms trying to limit their exposure to falling prices in the options market began dumping crude futures in a strategy known as delta hedging.
West Texas Intermediate crude has lost 10% of its value in March, prompting analysts to wonder how far prices must fall before OPEC+ adjusts output quotas. While the cartel has said it’ll keep production unchanged this year, headwinds are bearish: US crude stockpiles are expanding again, Russian exports remain resilient in the face of sanctions and the International Energy Agency expects a surplus in the first half of the year.
“The path of least resistance is clearly to the downside for oil,” Fawad Razaqzada, a market analyst at StoneX, said in a note. As long as oil prices stay below $70 a barrel, he added, “the sellers will remain in control.”
Until recently, oil was stuck in a $10 range with traders balancing aggressive monetary tightening with optimism around China’s demand recovery. Now, with an unfolding banking crisis driving investors from risky assets, oil may have further to fall.
Elements, Bloomberg’s daily energy and commodities newsletter, is now available. Sign up here.
–With assistance from Natalia Kniazhevich.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.