The last 30 minutes of each oil trading day this week have been a roller-coaster, as traders adjust positions in a market where commercial users vital to a stable market – like oil companies – have largely disappeared.
Oil prices have been pummeled by the double-whammy of lower demand due to coronavirus and oversupply as Saudi Arabia and Russia tussle for a majority of market share. US crude futures have lost more than 50 per cent in the past two weeks, and more wild swings could be in store.
This week’s action was dominated by hedge funds, money managers and other speculators who have tried to find the bottom in a market that keeps falling, said Bob Yawger, director of energy futures at Mizuho.
On Thursday, April US crude futures gained so much late in the day that trading was automatically halted for two minutes of post-settlement trade due to a built-in circuit breaker to curb volatility. On Friday, the opposite happened: the futures contract fell more than $4 in the last half-hour of trade before the contract expired.
“It’s a crazy market. I don’t know how to trade this,” one futures trader said.
Speculators increased their long positions in the period up to Tuesday, according to the Commodities Futures Trading Commission, even as prices plunged. Such traders tend to jump in and out to profit swiftly, but flee when markets move against them.
For commercial buyers, oil companies that can take physical delivery of the crude, there is less pressure to exit ahead of expiration.