Market Extra: Oil prices could go negative again, so be prepared, CFTC warns futures industry
A rerun of the oil market plunge that took the New York Mercantile Exchange’s now expired May crude contract into negative price territory on the eve of its expiration last month can’t be ruled out, the Commodity Futures Trading Commission warned Wednesday, urging the futures industry to be prepared.
In a staff advisory, the regulator reminded exchanges, futures brokers and clearing houses that “they are expected to prepare for the possibility that certain contracts may continue to experience extreme market volatility, low liquidity and possibly negative pricing.”
The rare warning comes after the May contract for West Texas Intermediate crude made history on April 20, with prices tumbling below zero and settling in negative territory. The move came in thin trading as holders of long positions scrambled to exit amid a lack of available storage for delivering the crude a day ahead of the contract’s expiration.
The June WTI contract
expires on May 19. Oil futures have gained ground since late April and storage-related worries have eased somewhat. Oil inventories in Cushing, Oklahoma, the delivery hub for Nymex futures, declined by 3 million barrels last week, the Energy Information Administration reported Wednesday, falling to 62.4 million barrels. Working storage capacity at Cushing stands at around 76 million barrels.
CME Group Inc. Chief Executive Terry Duffy told CNBC in the days following the slump into negative territory in the May contract that the exchange and regulators had been prepared for that possibility and that the “futures market worked to perfection.”
Interactive Brokers Group Inc.
on Monday said it would recognize a revised $104 million loss as a result of the negative settlement as it fulfilled margin settlements with clearing houses and moved to compensate some customers for losses.