Rumors Fly in Wild Day in the Oil Pit

Tweets, bleats and Al-Jazeera, and maybe new margin requirements were all part of the reason behind the big swing in oil prices Thursday.


Oil prices rocked early and then rolled over late in Thursday's session as rumors swirled about the possible death of Muammar Gaddafi.

The latest in a string of rumors was that the unpopular Libyan dictator was shot, but NBC News reports that U.S. officials have no information to confirm that rumor. But maybe as important to the price of oil Thursday was the fact that Nymex and ICE, in a seemingly coordinated fashion, raised margin requirements on crude futures, by as much as 20 percent. The most speculative type of investments would now require a margin deposit of $6,075 from $,5063, on a contract with a notional value of about $100,000.

The Gaddafi rumor, chatted about and tweeted widely, seems to have coincided with traders also hearing about a possible margin hike, which was announced after the close. Together with the Gaddafi rumor, the speculation helped drive oil prices to the point where crude was lower on the day.

Oil fell $2 in a half hour, to finally close at $97.28 a barrel. It also fell through a key technical level, of $97.73, and continued to trade lower in the electronic session. WTI hit of low of $95.62 before moving it back above $97.

Ray Carbone, president of Paramount Options, said he heard speculation that margin requirements would be raised in the 2 p.m. hour, and it was not surprising given oil's volatility. CNBC received a release on the new Nymex requirements just after 4 p.m.

"It makes sense they should require more margin because the market is more volatile," said Carbone, adding he had also heard the rumors about Gaddafi. "The metals suffered just like the crude suffered and they would have (gone down more) if Gaddafi had been confirmed shot," he said.

Carbone said any margin-related selling should be short lived as traders reposition. But volatility, and the flurry of unconfirmed rumors and speculation, that resulted in a nearly $8 swing Thursday will remain. "The market is ripe for rumors," he said.

WTI crude hit a high of more than $103 overnight, on concerns about the shutdown of Libyan oil production and that unrest would spread to other oil producers. But a story early in the day about Saudi Arabia moving to make up the production lost in Libya helped support prices, and oil moved off its lows.

Rumor mongerers were in overdrive Thursday, after speculation about further shutdowns of Middle East production drove oil sharply higher Tuesday and Wednesday, and that Saudi Arabia would also be tested by unrest. Saudi rulers Wednesday promised new benefits for Saudi citizens as King Abdullah returned to the country after a three-month leave.

Gaddafi was at the heart of Thursday's chatter, as early morning rumors had him fleeing the country and even loading up a plane with gold to cushion his getaway.

Al-Jazeera also Thursday afternoon quoted the former Libyan Justice Minister saying Gaddafi had chemical weapons and may use them. NBC reports that U.S. officials say Libya does have a significant stockpile of chemical weapons, developed during the 1980s, but there is no indication he would use them against his own people.

Questions? Comments? Email us at