Crude Dropped in a Series of Mini 'Flash Crashes' The oil market's nearly 15% plunge this week was sparked by a series of small, computerized flash crashes.
Thursday's stunning decline in oil prices, which began early in the trading session and snowballed as the day went on, started with a record number of bets investors had made that prices would rise.
As oil prices soared above $100 a barrel, those positions had paid off handsomely, but many of these traders had set up protective, automatic orders to sell if the market began to move against them.
Those orders kicked in Thursday morning. The initial bout of selling was set in motion by disappointing weekly U.S. jobs data and a stronger dollar.
But once the liquidation gained momentum, each successive price drop triggered a wave of these automatic sell orders, sending crude sliding further—and starting another round of selling.
This week marked the one-year anniversary of what is now known as the "flash crash," when the Dow Jones Industrial Average plunged nearly 1,000 points within half an hour on May 6, 2010. Stocks recovered most of the losses by the end of that day, but the decline was later blamed on the large amount of "high-frequency" computerized trading in the market.
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