Oil declined more than $3 in less than a minute as October options were about to expire, ending the day with the largest drop in eight weeks.
Futures tumbled to $94.83 at 1:54 p.m. from $97.88 in the same minute on a surge in volume. The price slipped earlier after the Federal Reserve Bank of New York’s general economic index, known as the Empire State Index, reached a three-year low, indicating possible weakness in demand.
“Today it’s the price making the news, not the news making the price,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “In the larger scheme of things, I would go with the idea that this is profit-taking run amok.”
Oil for October delivery fell $2.38, or 2.4 percent, to settle at $96.62 a barrel on the New York Mercantile Exchange. Prices are down 2.2 percent this year. The decline was the largest since July 23. Prices traded above $98 before the slump that started shortly after 1:50 p.m.
Crude options for the October futures expired today. The futures expire on Sept. 20.
Brent for November settlement fell $2.87, or 2.5 percent, to $113.79 a barrel on the London-based ICE Futures Europe exchange.
The most active October options in electronic trading on the Nymex were the $98 puts, which gained $1 to $1.38 a barrel with 2,920 lots trading.
Trading volume stayed below 300,000 before picking up after 1:50 p.m. and rising to 633,000 at 3:44 p.m. The low early volume, due to the Jewish New Year holiday Rosh Hashana, contributed to the drop, said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. The three-month average volume is 536,000.
“Transactions in a low volume just sort of set this up,” he said. Speculation that the U.S. government would release oil from Strategic Petroleum Reserve also boosted prices, he said.
Jay Carney, the White House spokesman, said in e-mailed comments that there is “no change” in oil reserve releases. He said on Aug. 30 that the Obama administration is continuing to look at all its options to make sure high oil prices don’t crimp the global economy.
“I think it’s a combination of options expiration and Rosh Hashana,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “My guess is that someone had an order they had to fill before options expired and there’s light volume because of the holiday.”
CME Group Inc., owner of the Nymex, said it did not suffer any technical issues as oil, gasoline and heating oil dropped on the exchange, said Chris Grams, a spokesman for CME. Gasoline and heating oil declined more than 2 percent.
The U.S. Commodity Futures Trading Commission in Washington will look into the decline and trading surge.
“When price and volume move so fast and so dramatically, it raises our antennas immediately,” Commissioner Bart Chilton said. “We need to get a quick visual on what happened and why. In this sort of circumstance, I always want to know what the cheetah traders -- the high-frequency traders -- were doing.”
Commissioner Scott O’Malia said the CFTC is contacting CME and IntercontinentalExchange Inc. to learn more.
Oil fell in trading before the late decline as manufacturing in the New York region contracted more than forecast in September and as the dollar gained against the euro.
The Federal Reserve Bank of New York’s general economic index, known as the Empire State Index, tumbled to minus 10.41, the lowest level since April 2009. Readings less than zero signal contraction. The index covers New York, northern New Jersey and southern Connecticut.
“The underlying economy has yet to be helped by all this economic stimulus,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “We’re probably going to need a new catalyst or else we’re probably going to consolidate for several days. There’s enough geopolitical risk to keep the market from breaking down.”
The euro fell as much as 0.4 percent to $1.3084 after finance chiefs deadlocked at euro-area debt-crisis talks. A stronger dollar reduces oil’s appeal as an investment alternative. Oil advanced as much as 0.5 percent in intraday trading on concern that protests in the Middle East would lead to supply disruptions.
“Today’s price action appeared to highlight an unusually nervous market environment in which the oil complex has become heavily reliant upon intangible forces such as economic stimulus measures and Middle East tensions for sustainable price strength,” said Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois-based consulting company, in a note to clients.