Oil Crashes Over 7% In Biggest Drop In 3 Years, Triggering CTA “Max Short” Programs

There’s something about Tuesdays.

Exactly one week after oil plunged on November 13, tumbling over 7%, West Texas Intermediate is being thrown out with the bathwater, and on Tuesday afternoon it has plunged another 7.5% sliding from $56.76 to below $52…

… the lowest price since November 2, 2017, its WTI’s biggest drop since Sept. 1, 2015.

While some have noted that the oil, pardon the pun, liquidation is not unique and is hitting all commodities – perhaps in response to the surge in the dollar – including precious metals, the sell off has also spilled over into commodity currencies, with NOK getting hammered, while the Loonie just tumbled to the lowest level against the dollar in 4 months, while AUD and NZD are also getting hit. Predictably, the dollar is surging (just as virtually every bank declared the time to sell the greenback is here).

Positioning is also helping the slide, as the latest CFTC data showed the seventh consecutive week of net longs positions being sharply reduced in Brent as well as the tenth straight week of managed money declines in WTI.

Then there are the usual geopolitical suspects, with headlines suggesting that another OPEC output production cut in December is still up in the air, and will ultimately depend on Russia.

Finally, oil is also getting the “capitulatory rinse-treatment” as well, as systematic and trend-following models jump on the short side: Nomura’s CTA model shows that the “-13% Short” as of Monday’s close shifts to “Max Short” below $53.93, which would imply an additional -$1.3B on notional supply. And with WTI now below $53, it is likely that any additional declines will only lead to even more algos jumping on the short side and accelerating what is already a historic plunge.

The question now is how many more hedge funds will be OptionSellered, and suffer “catastrophic loss events” as a result of today’s crash. We also look forward to learning what Andurand’s November redemption requests will be. 

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