Traders Smitten by Puzzlement as WTI Crashes and Leaves Oil’s Dramatic Open Unclear

In a sudden and surprising turn of events, US crude futures opened lower on Thursday and experienced a drastic drop of 7.2% within the first few minutes of trading, much to the surprise of traders. Although West Texas Intermediate initially lost almost $5 per barrel, it quickly recovered. When the global benchmark Brent began trading a few hours later, it shed only slightly more than $1 per barrel, failing to follow suit. Despite several possible explanations being suggested, such as speculation, algorithmic selling, or even a previous options position, none of them provided a definitive answer to the puzzling event.

Warren Patterson, who heads commodities strategy at ING, initially thought the sudden drop in US crude futures might have been caused by a “fat finger” error. However, he also acknowledged that the volume traded at that time could have contributed to the fluctuations. Meanwhile, Vandana Hari, another experienced market observer based in Singapore, suggested it might have been due to “panic selling.” Whatever the cause, this event is merely the latest example of the highly volatile and unpredictable nature of the global oil market in recent weeks. OPEC+ supply cuts have boosted prices, but concerns about slower growth and other uncertainties have also driven them down again. Although such rapid swings often happen during the first moments of trading, this particular drop occurred a few minutes after trading began, which was unusual, especially given the typically low trading volumes during Asian hours.

During the fifth minute of the trading session, the number of June futures contracts traded surpassed 3,000. Within this short time frame, oil prices rapidly dropped by over $3, reaching a low of $63.64 a barrel, which had not been seen since the end of 2021. However, just three minutes later, WTI futures rebounded and returned to $66 per barrel. After this tumultuous start to the day, it took slightly over three hours for prices to eventually recover and turn positive. This sudden and significant move in the market may prompt concerns about the market’s liquidity, particularly since it was limited to WTI and Brent remained unscathed. Commodities markets have previously experienced greater volatility in response to reduced activity and thinner trading volumes.