Why Did Oil Fall $3.69 Today?

U.S. crude oil for September delivery fell $3.69 to settle at $121.41 per barrel today on the New York Mercantile Exchange. Why?

According to an Associated Press article:

Oil initially turned lower after the Commerce Department reported that consumer spending fell in June as shoppers dealt with higher prices for gasoline, food and other items. That bolstered analysts' arguments that a U.S. economic slowdown is forcing Americans to scale back on energy use.

A number of other news sources essentially attributed the oil price decline to the same report. The problem with this is that the Commerce Department report was released at 8:30 a.m. As shown in the intraday chart above, oil didn't start falling until after 10:00 a.m. In fact, it first rose following the release of the report.

Bloomberg takes a stab at it:

Crude oil fell for a second day amid speculation Tropical Storm Edouard will skirt most offshore oil facilities as it approaches the coast of Texas.

I checked the status of Edouard before 8:30 a.m this morning on the Weather Channel, and it was very clear at that point that Edouard wasn't going to cause much of a disruption for the Gulf of Mexico energy complex. Edouard developed fairly quickly. We didn't have a $4 rise in oil attributed to Edouard, so it's hard to believe that the fall in oil today can be attributed just to Edouard.

Next, Business Week gives it a shot:

A report that Iran's chief nuclear negotiator Saeed Jalili and the European Union's foreign policy chief, Javier Solana, had called on Monday for a "positive air" over Iran's nuclear issue and would continue to keep communication open was also weighing on oil prices.

This is just laughable. Iran has been in the news practically every day with alternating stories of their openness to talks and their insistence that they won't be giving up their nuclear program. This doesn't even qualify as news anymore. Jalili and Solana are going to have to do better than "positive air" to have a real impact on oil prices.

The fact is that something happened at 11:30 a.m. that sent traders running for the exits. I couldn't pinpoint any specific item that came out at that time. It could have just been a large seller with other traders jumping on board. The issues mentioned above may have fed the sell-off, but they didn't cause it. The other key point is that there was a sell-off across the board in commodities yesterday, not just in oil. Natural gas, corn, base metals, wheat, and soybeans were all hit. Even commodity-related companies that benefit from lower energy prices (like fertilizer firms) were hit hard.

The lesson here, as I've cautioned before, is to be careful about what you read from "reliable" sources. Many writers and investors explain away the actions in the financial markets with a ridiculous degree of certainty when they should be using words such as "perhaps", "maybe", and "possibly". Maybe we'll perhaps possibly even find them some day admitting that they just don't know.