Market Extra: 7 key reasons the ‘bottom is falling out’ of oil prices on Black Friday

Crude-oil prices carved out fresh yearly lows early Friday, deepening carnage in a commodity that already had futures for the U.S. benchmark and the international contract in bear-market territory.

Global benchmark Brent oil

LCOF9, -5.45%

and WTI are in a bear market, usually defined as a drop of at least 20% from a recent peak.

Here are a few reasons that industry experts say contributed to Friday’s tumble, which had West Texas Intermediate crude on the New York Mercantile Exchange

US:CLZ8

shedding 7.7% to settle at $50.42 a barrel, marking the lowest finish since Oct. 9 of 2017:

  • . Holiday trading volume: Traders say that Friday’s decline can at least partly be attributed to thinner trading volumes following Thanksgiving, when commodity markets were closed. Lower trading activity can exacerbate moves in an asset, and with crude engulfed in a vicious downtrend, the tendency is lower. Moreover, the crude market will close an hour earlier at 1:30 p.m. Eastern.
  • . Oversupply: U.S. oil production topped 11 million barrels a day earlier this year, according to the Energy Information Administration, sparking fears that supplies will overwhelm demand. Major producers Russia and Saudi Arabia are also seen producing at record levels.
  • . Margin calls: Traders say that Friday’s decline also has been intensified by margin calls from hedge funds and those speculating on the price of oil. A margin call occurs when a broker demands that a client that’s lost money making leveraged bets pony up additional money to meet a minimum maintenance margin. Margin calls can result in forced selling, amplifying upside and downside moves.
  • . China demand: China’s demand for oil byproduct, gasoline, dropped to a the lowest level in 13 months, according to a Reuters report on Friday, offering further signs that the Beijing-Washington trade spat is hurting the world’s second-largest economy and one of the biggest importers of energy-related products.
  • . Trump: President Donald Trump has consistently been advocating for lower oil prices and on Wednesday issued a tweet urging even lower prices and thanking the Saudis for recent declines.
  • . Saudi Arabia in a corner: Market participants have said that the Saudi-orchestrated killing of journalist Jamal Khashoggi has complicated politics around oil. Trump is reluctant to sanction Riyadh because of a desire to keep fuel prices lower and preserve defense-sector deals. The oil-producing nation may feel compelled to comply with the U.S. president’s desire for lower crude prices.
  • . Dollar gains: A rising dollar also helped to create a headwind for the commodity because the dollar-priced asset becomes less attractive to buyers using other currencies when the buck strengthens.

Oil’s convulsion lower has unsettled investors and stoked further uncertainty about global economic health. Lingering worry about expansion outside of the U.S. is reflected in the SP 500 index

SPX, -0.66%

the Dow Jones Industrial Average

DJIA, -0.73%

 and the Nasdaq Composite Index

COMP, -0.48%

all booking their worst Thanksgiving week since 2011.

Check out: Why falling oil prices are now a net drag on the U.S. economy

“Concerns of slowing global demand and a possible slowdown for China,” have investors worried that oil is an ominous signal for global markets, Phil Flynn, senior market analyst at Price Futures Group told MarketWatch. “The bottom is really falling out of oil,” Flynn said.

“Traders are starting to wonder if the slump in the oil market also reflects weak future demand, and that is weighing on the price also,” wrote David Madden, market analyst at CMC Markets UK, in a Friday note. He said “oil has gone from bad to worse.”

Tariq Zahir, managing member of investment-advisory firm Tyche Capital Advisors, said he believed margin calls were adding to the downdraft for oil and speculated that the market could see a settlement below $50 a barrel. “I really think $50 is going to be broken,” he told MarketWatch.

Zahir also said Saudi Arabia, viewed as the most influential member of the Organization of the Petroleum Exporting Countries, wasn’t in a position to drive oil prices higher due to the politics around the killing of Khashoggi.

“I think the Saudis are really painted into a corner,” he said. OPEC will convene a key meeting on Dec. 6 that will be watched for the plan to address the dramatic unraveling in prices that has taken hold.

Market participants think the meeting can’t come soon enough.

Check out MarketWatch’s explanation for how oil pivoted from a 52-week high to a bear market.

Read: Here’s what U.S. waivers on Iran oil sanctions mean for the global crude market

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Mark DeCambre is MarketWatch’s markets editor. He is based in New York. Follow him on Twitter @mdecambre.

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