Oil Slumps At End Of Choppy Week In Sign Of Fading Risk Premium

(Bloomberg) -- Oil tumbled at the end of a turbulent week, with traders continuing to weigh the impact of a slowdown in China against a possible attack by Iran or proxies on Israel.

West Texas Intermediate traded close to $76 a barrel, erasing its gain for the week. Oil prices have been choppy in the depths of summer trading, roiled by the tumult in wider markets, bumper swings in algorithmic positioning and geopolitical risk in the Middle East. Crude extended declines after the White House said talks about a potential Gaza cease-fire agreement have been “serious and constructive.”

This week, while robust retail sales and jobs data from the US — the world’s biggest oil consumer — painted a brighter outlook, figures from top importer China including slowing fixed-asset investment and industrial activity were less positive. At the same time, the US Energy Information Administration reported an increase in the nation’s crude stockpiles on Thursday. That’s top of mind for traders, with commodity trading advisers, or CTAs, accelerating downward momentum.

“Large-scale CTA selling activity is hitting the tapes in crude oil markets,” said Daniel Ghali, a commodity strategist at TD Securities, in a note to clients. “We expect CTAs to shed their entire position long in Brent crude this session and build a net short position, with additional scope to sell WTI crude over the coming week in a downtape scenario for prices.”

As a result, the global benchmark is now back below $80 a barrel. Traders had been pricing bigger premiums for bullish calls in options markets as tensions remain high in the Middle East, but some of that move has also faded in recent days. Disruptions to supply in Libya have also so far done little to support futures prices.

--With assistance from Yongchang Chin.

More stories like this are available on bloomberg.com

©2024 Bloomberg L.P.