Brent slips below $113; China in focus
Singapore, September 18, 2012
Brent crude slipped under $113 a barrel in choppy trade on Tuesday, adding to steep losses in the previous session, with some traders saying a hedge fund may be liquidating positions.
The losses follow last week's gains which were fuelled by the Federal Reserve's open-ended stimulus program, but that rally, which also spurred gains in other commodities, appeared to be losing steam as investors shifted their focus to what China would do next to boost its economy.
"In the current environment, China's economy is likely to be a key focus for investors who have been unsettled by indications that its economy may be weaker than anticipated," said Ric Spooner, chief market analyst at CMC Markets.
Brent crude fell more than $5 a barrel late on Monday in a wave of late, high-volume selling that many traders said appeared to have stemmed from an automated computer trading programme. The US Commodity Futures Trading Commission said it was looking into the incident and checking with exchange operators CME Group and Intercontinental Exchange .
London Brent crude for November delivery was down $1.03 at 0630 GMT at $112.76 per barrel. "There is some talk about a hedge fund liquidating positions," said a Singapore-based trader at an investment bank.
Brent, which had settled at $116.66 a barrel on Friday in its seventh straight session of gains, sank on Monday from $115.20 at 1752 GMT to $111.60 three minutes later as trading volumes shot up.
US crude slipped from $98.65 a barrel to below $95 in the same three-minute period. The October contract, which is set to expire on Thursday, was trading 47 cents lower at $96.14 a barrel.
The wild price fluctuations in the previous session were not fundamentally driven, traders said, and were probably triggered by lower-than-normal trading volumes due to a Jewish holiday, a drop in US equities and the euro, and speculation about the possible release of US strategic stocks.
"As far as this being a sell-off that was fundamentally driven...slim chance, I don't see it," said Jim Ritterbusch, president of energy consultants Ritterbusch & Associates in Galena, Illinois.
"This was simply a case of a lot of people doing the same thing at the same time, they were feeding off the rumor of an SPR release, and you add that to the other market moves in equities, the euro and you get the perfect storm."
US and European stocks gave back some of last week's huge gains on Monday as investors began to question whether recent action by both the European Central Bank and Federal Reserve would be enough to revive global economic growth.
"To a certain extent there are still a lot of questions about the economy. With every QE (quantitative easing) announced the effect packs less punch especially since we are in a near zero interest rate environment," Ritterbusch said.
"All eyes are on China now to see if the government there will increase their stimulus spending programme."
China's September survey of purchasing managers due out later this week is not expected to show any pick-up in activity, with Goldman Sachs looking for more weakness following August's reading of 47.5.
A Reuters poll showed that China's economy would slow further in the third quarter and regain momentum late in the year, but growth would still be below 8 percent, a level not seen since 1999.
The White House said late on Monday it was still considering a release from the Strategic Petroleum Reserve but declined to provide more details and made no further announcement after the big dip in crude prices. - Reuters