Oil Sell-Off: Don't Blame Bernanke, It's The Banks

Ben Bernanke talking about "significant" risks to economic growth in front of the Senate committee definitely spooked some traders here at the Nymex. But today's sell-off in oil wasn't all due to Big Ben. Blame the banks.

Oil posted its second biggest dollar decline in history--down over $6 after after declining nearly $9 lower earlier today--as banks around the globe looked to shore up their balance sheets by raising cash.

A rash of liquidation--rumors of some heaving commodities selling at one major firm in particular--contributed to the oil price plunge to just over $138/barrel. And when the selling started, it took hold and spread across the energy complex.

Merrill Lynch sector strategist Brian Belski's comments may have overshadowed Bernanke's testimony in some traders' minds. In a research note this morning, he called for a possible end to the commodities cycle (stocks, not futures) after such a strong first half of the year. Why should big banks hold onto these stellar performers if the winds could soon change? Time to take profits off the table and raise liquidity.

Traders have also been skittish for weeks with all of the "regulation talk" in Washington. The CEOS of NYMEX, ICE, CME as well as federal regulators and commodities execs from top investment firms gathered together for the first meeting of the CFTC Global Markets Advisory committee this afternoon. Verbal "speculation" swirled on the NYMEX floor about whether increased regulation of futures markets could come later this week.

With all of those concerns, it's no wonder investors want to keep their money in cash, or maybe gold, as safe haven against financial market distress. Maybe it shouldn't come as as a surprise that banks were looking sell some winners in any asset class. Oil was up nearly 50%, natural gas up 80% in first six months of the year. For those taking some profits now--when winners are so hard to come by--I don't blame ya.  

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