If crude oil prices extend their sharp slide below the $US50 a barrel mark it could trigger an even deeper wave of investor selling, energy analysts said on Wednesday. Oil prices have slumped about 16 per cent since the start of the year to below $US51 a barrel before picking up to around $US52.50 in after-hours trading and the market has a concentration of "put", or sell, options around the $US50 and $US45 a barrel level, making them key pivot points. | The spot price in Dubai sank to $US49.39 on Wednesday but in early trading last night was back over $US50 - by just one cent. |
The drop in oil prices has been caused in part by an abnormally warm winter that has cut into demand for heating fuels and has rung alarm bells for OPEC members struggling to buoy prices with production cuts. But analysts have also been pointing to hedging by oil producers who wish to lock in revenue because they think oil's five-year rally may have run out of steam. "A $US50 WTI [West Texas Intermediate] price represents a level that could concern higher-cost producers and at that level we would expect to see further producer hedging that may not be easily absorbed by the hedge fund community," JP Morgan said in a research note.