U.S. crude futures took a violent tumble Monday, dropping more than $3 in less than a minute on a huge spike in trading volume, shaking broader markets and sparking confusion across trading floors.
At 1:54 p.m. EDT, light, sweet crude for October delivery plummeted to a low of $94.83 a barrel on the New York Mercantile Exchange after trading above $98 a barrel throughout the session. Volume surged to more than 12,500 contracts in a minute, after trading near 100 contracts for most of the session.
The decline took investors by surprise across markets, leading to sharp drops in stocks, the euro and other commodities. CME Group Inc. (CME) said there were no technical trading issues involved in the selloff, and the lack of a discernable reason for the decline sent traders scrambling to the phones looking for answers.
"Traders were looking like deer in the headlights," said Peter Donovan, a Nymex floor trader at Vantage Trading. "It was just confusion as traders were scrambling. I called four different desks, and they all said, 'we don't know.'"
U.S. crude futures pared some losses to settle $2.38, or 2.4%, lower at $96.62 a barrel, the lowest in a week. Brent crude on the ICE futures exchange settled $2.87 lower at $113.79 a barrel.
The sharp slump comes amid growing jitters among analysts, traders and other market watchers, fearful that renewed turmoil in the Middle East, particularly surrounding Israel and Iran, could quickly lead to big moves in the oil pits.
"The market is just showing its vulnerability. We've got a $10 to $15 premium just on Iran, so the market is susceptible to just come off," said Tony Rosado, a broker at Dorado Energy Services.
Gen. Mohamad Ali Jafari, head of Iran's Revolutionary Guard Corps., said Sunday if Iran was attacked, the country would retaliate against U.S. bases in the Middle East and Israel, and aim to disrupt oil shipments through the Strait of Hormuz, according to Agence-France Presse.
Meanwhile, on Sunday Israeli Prime Minister Benjamin Netanyahu called for the U.S. to establish a "red line" on Iran's nuclear program that would result in a military response.
Conversely, the potential for a release of strategic stockpiles by the U.S. to combat high prices has raised fears of sharp declines. On Monday, rumors quickly circulated that a strategic release was behind the sharp slump. But a White House official said the administration currently has no plan to release oil from the 700-million-barrel Strategic Petroleum Reserve.
"As we have made clear, all options remain on the table, but we have nothing to announce at this time," the official said.
Front-month October reformulated gasoline blendstock, or RBOB, settled 2.4% lower at $2.9433 a gallon. October heating oil dropped 2.4% to $3.1634 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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