Financial investors wrong-footed by the sharp price drop of Brent

Oil prices recorded their sharpest respective daily declines in five months yesterday. Brent shed more than 6% and WTI almost 8%. The even more pronounced fall in the price of WTI was due mainly to the fact that last Friday was a public holiday in the US so no trading took place. 

At $56.4 per barrel, Brent recorded a three-month low. At $52.4 per barrel, WTI was trading for a time at its lowest level since mid-April. Speculative financial investors expanded their net long positions in Brent by 6,700 contracts in the week to 30 June, which simultaneously marked the first position build in eight weeks. 

This saw them completely wrong-footed given that the Brent price has fallen by a good 10% since the reporting date. In other words, the price slide could have been further exacerbated by these investors finding themselves forced to sell, says Commerzbank. 

The drop in oil prices in recent days was doubtless due in part to the expectation that agreement will finally be reached in the nuclear negotiations with Iran this week. The extended deadline for this ends today.