NYMEX crude drops sharply, options approach expiry

NEW YORK, May 15 (Reuters) - U.S. crude oil futures reversed and fell on Thursday, with a sell-off in natural gas and volatility associated with the June crude contract options expiration being cited by traders.

"Big sell-off in natural gas looks to be dragging everything down" Tom Knight, a trader at Truman Arnold in Texarkana, Texas.

On the New York Mercantile Exchange at 1:26 p.m. EDT (1726 GMT), June crude CLM8 was down $2.55 or 2.04 percent at $121.69 per barrel, trading from $120.75 to $126.64. Tuesday's $126.98 peak was an intraday record.

"I think we're seeing a combination of options expiry and natural gas," said Phil Flynn, analyst, Alaron Trading in Chicago.

A power outage that shut the Intercontinental Exchange's platform was also mentioned as adding to the downward pressure. [ID:nN15442247]

The June Brent crude oil contract was due to expire on Thursday.

"The (ICE) glitch may have caused some squaring up of positions, just getting out as a precaution," said a NYMEX broker.

NYMEX natural gas futures tumbled sharply after an unexpectedly-large weekly inventory build was reported.

June natural gas NGM8 slid 40.0 cents, or 3.45 percent, to $11.198 per million British thermal units. [ID:nN15403323]