With all the high-speed trading glitches that have occurred this year, Monday’s sudden $3 drop in oil prices may have seemed like the next installment of the series. But market participants are giving more credence to the drop, thinking that it may be a sign that current oil prices are not sustainable.
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Prices did not recover like they would have in a so-called flash crash. Many oil market bulls, however, are still hoping that unrest in the Middle East will cause oil production to be cut.
Reasons for the drop include concerns that the US will begin to tap its strategic oil reserves. Demand for oil has weakened as the world’s economies have weakened. China’s economy is a case in point since China is one of the largest users of oil.
Demand is weak and supply is adequate. As well, with the recent spike in prices, traders may be entering a profit-taking period.
Traders will focus on the Wednesday September 19 report on weekly inventories
and the next Tuesday’s report on inventories from the American Petroleum Institute to gauge supply and demand factors.