The Curious Case Of A Sudden 7% Drop In WTI Price: Was It A Fat Finger, Algo Trading Or A Giant Options Position?

West Texas Intermediate (WTI) prices plunged 7.2% during the first few minutes of the opening trade in Asia on Thursday and puzzled experts are touting different reasons for the sudden and dramatic fall in prices, which later stabilized.

When trading kicked off a few hours later in global benchmark Brent, it did not respond in a similar fashion, merely declining by a little over $1 a barrel, reported Bloomberg.

Also Read: How To Invest In Oil

Traders and analysts are factoring in a variety of reasons for the sudden drop in prices that include speculators abandoning bullish bets, a possible fat-finger trade, algorithmic selling, or a giant options position earlier this week that now looks to be loss-making, the report said.

Expert Take: Warren Patterson, head of commodities strategy at ING said his first thought was that it must have been a fat finger. "But it could just have been someone closing out, and that kind of volume is going to be felt at that time," he said, according to the report.

In the fifth minute of the session, over 3,000 June futures contracts changed hands, the report said. Over that period, prices suddenly dropped by over $3 to hit a low of $63.64 a barrel, the lowest intraday level since late 2021.

However, three minutes later, WTI futures were back at $66 a barrel, and in a little over three hours, prices eventually turned higher.

WTI futures expiring in June were trading 0.44% higher at $68.85/barrel during Friday morning Asian trade.

Oil prices have witnessed a tumultuous period ever since OPEC+ announced a surprise production cut but demand concerns in the wake of recessionary fears countered the upward price movement.

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