March 20, 2020 / 9:44 PM / 19 days ago

Late-day moves shake up 'crazy' crude oil market

NEW YORK, March 20 (Reuters) - The last 30 minutes of each oil trading day this week have been a roller-coaster, as traders adjust positions in a market where commercial users vital to a stable market - like oil companies - have largely disappeared.

Oil prices have been pummeled by the double-whammy of lower demand due to coronavirus and oversupply as Saudi Arabia and Russia tussle for a majority of market share. U.S. crude futures have lost more than 50% in the past two weeks, and more wild swings could be in store.

This week’s action was dominated by hedge funds, money managers and other speculators who have tried to find the bottom in a market that keeps falling, said Bob Yawger, director of energy futures at Mizuho.

On Thursday, April U.S. crude futures gained so much late in the day that trading was automatically halted for two minutes of post-settlement trade due to a built-in circuit breaker to curb volatility. On Friday, the opposite happened: the futures contract fell more than $4 in the last half-hour of trade before the contract expired.

“It’s a crazy market. I don’t know how to trade this,” one futures trader said.

Speculators increased their long positions in the period up to Tuesday, according to the Commodities Futures Trading Commission, even as prices plunged. Such traders tend to jump in and out to profit swiftly, but flee when markets move against them.

For commercial buyers, oil companies that can take physical delivery of the crude, there is less pressure to exit ahead of expiration. For so-called paper traders, like hedge funds, the pressure is on: sell or risk having to find a place to store 1,000 barrels of physical crude oil for every contract held.

“The speculative community rode their position into the close, and it’s a difficult position to exit at the end of the day and at the end of the contract’s life,” Yawger said. “They should get out when it turns red. They sit there hoping it goes back to green, and instead the market gets pummeled by consecutive waves of bad news and they’re paralyzed.”

Prices often move late on Fridays, as traders work to reduce risk going into a weekend. Such moves were common as prices pulled back in late 2008.

CME Group Inc, operator of the world’s largest commodities exchange, has raised margins for trading NYMEX crude oil futures by 20.4%, to $5,600 per contract. Margins are deposits held by the exchange to make sure members can meet their obligations. They must be kept to hold a position and are adjusted in response to market volatility. (Reporting by Jessica Resnick-Ault and Devika Krishna Kumar; Editing by Will Dunham)

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