One trader has an interesting theory about why oil may have bottomed.
Earlier on Wednesday, data from the Energy Information Administration showed that crude oil inventories rose by 7.8 million barrels last week, more than the forecast for 4.8 million.
Oil prices initially dipped a bit and stocks tumbled to the lowest levels of the session.
But near mid-afternoon on Wednesday crude prices were spiking higher and stocks were following in what’s been a very volatile day of trading.
Rich Barry, floor governor of the New York Stock Exchange, wrote in an afternoon email that this action may have indicated something like a bottom for crude.
Here’s Barry (emphasis ours):
At 10:36 am this morning, both the Dow and crude oil were cratering in what appeared to be panic-selling as the Dow traded down 193 points while WTI crude broke below the $30/barrel level for the first time since early last week. It was at exactly this time, also, that inventory data hit the tape showing a huge increase in weekly crude inventory levels of 7.8M barrels (!) … We figured that all heck was about to break loose — that stocks would continue following crude and that both would fall off a cliff. But, the exact opposite happened.
Both crude oil AND stocks reversed hard off their lows, which caught everyone — especially us — by surprise… One astute trader hit us with his assessment, “When crude rallies on news of huge inventory levels, it means that we have seen the bottom in the commodity.”
The rally in oil after news that inventories are still at record highs is a sort of counterintuitive move, which is probably where this adage comes from.
In afternoon trading West Texas Intermediate crude oil, the international benchmark, was up about 8% to around $32.30 a barrel.