(Bloomberg) -- Oil closed at a 15-month low as a wave of technical selling and options covering accelerated a three-day slide.
The US benchmark plunged more than 5% Tuesday, plagued by banking-sector turmoil that's eroding oil-demand optimism. Adding to the chaos, financial firms trying to limit their exposure to falling prices in the options market began dumping crude futures in a strategy known as delta hedging.
West Texas Intermediate crude has lost 10% of its value in March, prompting analysts to wonder how far prices must fall before OPEC+ adjusts output quotas. While the cartel has said it'll keep production unchanged this year, headwinds are bearish: US crude stockpiles are expanding again, Russian exports remain resilient in the face of sanctions and the International Energy Agency expects a surplus in the first half of the year.
“The path of least resistance is clearly to the downside for oil,” Fawad Razaqzada, a market analyst at StoneX, said in a note. As long as oil prices stay below $70 a barrel, he added, “the sellers will remain in control.”
Until recently, oil was stuck in a $10 range with traders balancing aggressive monetary tightening with optimism around China's demand recovery. Now, with an unfolding banking crisis driving investors from risky assets, oil may have further to fall.
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