Apparently, oil wasn’t done “capitulating” on Tuesday when crude marked the one-week anniversary of the largest one-day plunge in more than three years by logging the second-largest one-day plunge in three years.
Like last Tuesday, this week’s rout was accelerated by dealers auto-dumping oil to stay hedged on puts they sold to producers. Apparently, a large Petrobras position that was pushed into the money on Tuesday was the straw that broke the camel’s back, once again transforming what would have already been a rough day into an absolute rout.
Meanwhile, as tipped by industry sources earlier this week and apparently confirmed by Al-Falih on Thursday, the Saudis are pumping at a record pace just as U.S. stockpiles have risen for nine consecutive weeks.
So, it comes as no surprise that Brent plunged below $60 on Friday, on its way to a seventh straight weekly loss.
On the month, we’re now staring down a truly epic collapse.
There is no telling where this is going to stop and while there are those who may chuckle at the negative gamma story, we’re now within striking distance (pun fully intended) of $50 on WTI and there’s a lot of OI there, so we’ll see who’s laughing if something snaps.
In that context, this is a candidate for tweet of the week:
You say you're a huge fan of Negative Gamma but can you even name two of their albums?
— Luke Kawa (@LJKawa) November 23, 2018
As a reminder, seeing these types of dramatic declines clustered so close together is anomalous to say the least. Here’s WTI (see bottom pane).
Anyway, implied vol. is obviously soaring and on Brent, is still parked up near the highest levels since 2015.
The 14-day RSI has been oversold for at least 13 sessions, which looks like the longest such streak in oversold territory dating back to December 2014/January 2015.
Needless to say, Friday’s action (assuming it doesn’t reverse course), only adds to the pressure on OPEC+ to announce something – anything, really – to arrest the slide next month.
Of course that’s going to be complicated immeasurably by Donald Trump, who now feels like Riyadh owes him a favor after he effectively pardoned Crown Prince Mohammed earlier this week for ordering the extrajudicial killing of dissident journalist Jamal Khashoggi.
Stay tuned – as the President would say, “the ratings will be tremendous.”