Tuesday, July 22, 1986 : Oil Futures Prices Drop

Oil futures prices took a nose dive Tuesday in a selloff linked to the expiration of the August contract and revealing what analysts said is the basic weakness of the market.

August crude oil plunged $2 a barrel and dragged heating oil and gasoline futures sharply lower, too. Heating oil lost as much as the 2 cents-a-gallon limit for daily trading on the New York Mercantile Exchange. It was a sharp reversal from a two-day rally and “snapped the market right back to where it should be,” said Richard Marose, an analyst in Chicago with Geldermann Inc.

While many of the shorts (traders holding a net balance of sales) got out of the market on Monday, there were still a lot of commission houses in long positions on Tuesday, Marose said. “They got caught,” he said. “It showed no one was willing to buy and take delivery” at the higher prices, Marose said. “In one fell swoop, the market came back to reality.”

In addition, the market started out under pressure from lower prices in London, said Andrew Lebow, an analyst in New York with Shearson Lehman Bros.