Crude oil prices jumped $25 a barrel on Monday – the largest one-day rise – as financial investors betting on falling oil prices were forced to cover their positions ahead of the expiry of the current benchmark futures contract.
The jump to an intraday high of $130 a barrel – a rise of about $40 a barrel from last week’s low – was exacerbated by a weakening US dollar and data showing weaker supplies from Mexico, Nigeria and Saudi Arabia in recent weeks and surging imports by China.
Investors who had bet that oil prices would continue falling were forced to close their positions ahead of Monday’s expiry of the October oil futures contract at the New York Mercantile Exchange, traders and analysts said. The process is known as short covering.
The investors had little option but to cover their short positions at any price. If the positions had not been closed, they would have to take physical delivery of barrels of oil.
But in a highly unusual statement, the Commodity Futures Trading Commission, the main regulator of US commodity markets, said it was “closely monitoring” the large surge in oil prices for signals of market manipulation.
“CFTC enforcement staff will scour today’s trading activity to determine whether anyone engaged in illegal manipulation activity,” said Stephen Obie, head of the regulator division of enforcement.
Constanza Jacazio, an oil analyst with Barclays Capital in New York, said that the weakness of the US dollar had also supported crude prices.
Traders in New York said at least one hedge fund was facing losses after being caught on the wrong side of the oil price move.
Michael Wittner, global head of oil research at Société Générale in London, said: “Somebody had to have a very good reason to continue buying in such an extraordinary fashion and the most likely logical explanation is that they were desperate to get out of a short position.”
After surging $25 to $130 a barrel, the October contract settled at $120.92 a barrel, up $16.37 on the day.
The previous one-day record was set last June, at $10.75 a barrel. The November futures contract, from Tuesday the benchmark, settled at $109.37 a barrel, up $6.62 a barrel on the day.
The jump in oil prices led an across-the-board rise in commodities, with gold soaring above $900 a troy ounce.
The Reuters-Jefferies CRB index, a raw materials benchmark, closed up 3.9 per cent, extending a 10.8 per cent increase from last week’s low.
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