The CFTC Division of Market Oversight and the Office of the Chief Economist (the "Departments") investigated unusual trading activity on April 20, 2020 concerning the West Texas Intermediate ("WTI") Light Sweet Crude Oil futures contract (the "Contract").
In an interim report, the Departments found the WTI May Contract fell from $17.73 per barrel to -$37.63 per barrel over a short period of time. This was the first instance in 37 years of listing that a WTI Contract traded at a negative price. The Departments determined that the following points contributed to the negative prices for the May Contract:
- an unprecedented reduction in the demand for crude oil due to the effects of COVID-19 on an already oversupplied global crude oil market;
- concerns about the availability of storage at the WTI Contract's delivery point (the "Cushing facility") for excess production; and
- procedural worries about the physical delivery process due to scarcity in capacity at the Cushing facility by March 2020.
Commissioner Rostin Behnam commended the report, and questioned whether it indicated a need for further remaking as to position limits and regulation of electronic trading.
Commissioner Dan M. Berkovitz characterized the report as "incomplete and inadequate." He called it a recitation of the economic conditions that preceded the events of April 20 without determining the cause of the "unprecedented plunge" in prices. Mr. Berkovitz identified the following omissions and deficiencies in the report: (i) failure to analyze the disconnect of the WTI Contract from the physical market; (ii) insufficient analysis of the lack of capacity at the Cushing facility; (iii) failure to analyze the role of Trade at Settlement contracts; and (iv) failure to analyze the "flash crash" in the final 20 minutes of trading.
Commentary Steven Lofchie
Commissioner Berkovitz' statement raises an issue as to whether there will be a second CFTC study after a change in administrations, with the possibility that such a study may lead to additional rulemaking.
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