Today's trading in the oil saw the front month October contract, which rolled over today, close at $123, opening up a 12% spread between itself and the 2nd month November contract. During the course of the day it traded up as high as $130. When traders smells a short squeeze, they tend to pile in.
Word is that a large investor got caught on the wrong side of the trade and moved to cover a large short position.
The CFTC is said to be investigating the cause of today's anomalous trading.
AP reported, "Phil Flynn, analyst and oil trader with Alaron Trading Corp. in Chicago, said the late-session surge in oil appeared to be the result of a large investment fund scrambling to cover their short positions, or bets that prices would fall.
“When people sense that someone is short, it's like blood on the streets. It just accelerates the rally,” Mr. Flynn said.
The November contract closed at $109.37 also up sharply by about $6.62. If the price of oil manages to maintain above the $108-109 level, it may break the current downward trendline established since oil began its correction from the July $147/bbl peak .
It remains to be seen if energy prices will be impacted by a recession-led fall in demand. At last glance this evening, the November contract was trading just below 109.
Charts: Bespoke Investment Group