Singapore: If recent oil market history is any guide, Brent crude prices will mark time around $50 a barrel for another few days before resuming their decline. Why? Because it`s a nice round figure.
The freefall from $100 since August has shaken the roots of a deep conviction that Saudi Arabia will always be looking out for the market should it tank. The more than 50 percent drop in benchmark Brent crude has shocked traders and confounded analysts, even pushing some to look to social and cognitive psychology for price guidance.
A common corporate hedging strategy is to set up put options around big psychological levels, said Mark Keenan, who heads Asia commodities research at Societe Generale, as he explained why Brent had paused near $80, $70 and $60.
"During the recent downturn, we saw huge quantities of put options bought by oil producers," he said.
In the last two months of its slide, Brent had loitered at those levels for three to nine days before resuming its drop. Since Wednesday, it has sat just above $50. Analysts at BofA Merrill Lynch Global Research said prices may eventually fall as low as $40.
