Here’s Why Crude Oil Spilled

Following yesterday afternoon’s plunge, crude-oil futures fell again Tuesday morning, in what Wall Street says could be an indication of the emerging bear case for the commodity. Wall Street, however, did not agree on the cause of the sudden plunge in oil prices.

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On Monday afternoon, Brent crude-oil futures led the sell-off, dropping $1.11 to $112.68. Front-month crude-oil futures on the New York Mercantile Exchange closed at $95.99, down 63 cents, by the day’s end. Since the prices dropped, 40 minutes before closing, market watchers have searched for an explanation. The fact that oil futures have not rebounded after Monday’s drop suggests to many that the fall in crude-oil prices may be gaining more credence with the market.

John Kilduff, a trader at Again Capital, said Monday’s drop in oil prices was, “confirmation that the selloff, while violent yesterday, was for real in terms of how oil’s trading now.”

Many traders cited light volume, mainly due to the Jewish New Year, as a leading cause of the plunge; but, it is not the only theory to gain a following. Option expirations on Monday may have also added to the market’s volatility. Discord in the Middle East following the assassination of the U.S. ambassador and rising anti-American sentiment could have contributed as well. Even the mere mention of a potential Strategic Petroleum Reserve release by the White House drew blame for the drop.

In an effort to keep oil prices under control, a White House official commented Tuesday morning that all options were on the table when it came to the oil market, including a release from the Strategic Petroleum Reserve. But oil prices were already trading lower before the statement was issued.

Prior to Monday’s price drop, crude-oil had been trading above $100 for first time since May, pushed up by the Federal Reserve’s announcement of the latest round of quantitative easing.

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