Interim report on April’s oil price crash offers few answers

By Ben Bain on 11/24/2020

(Bloomberg) --A U.S. government analysis of April’s historic oil crash is likely to leave many market participants disappointed, as the report failed to identify a clear cause for crude’s unprecedented tumble to -$37 a barrel.

The Commodity Futures Trading Commission study did point to several factors that likely contributed to the harrowing plunge on April 20. They included an oil glut, a lack of demand due to the the coronavirus-fueled economic shutdown and concerns about a insufficient space to store crude. But those explanations have been cited for months, leaving businesses and traders still largely in the dark about what happened.

In releasing the highly anticipated document Monday, the regulator conceded that it might fall short of expectations. But CFTC Chairman Heath Tarbert said the agency was trying to be as forthcoming as possible in disclosing what it knows now, with the regulator calling it an “interim report.” Tarbert also declined to address whether the CFTC is probing potential misconduct tied to crude’s nosedive.

”This report presents important facts our career market oversight professionals and economists are able to share publicly and includes detailed analysis using non-public information and multiple sources of data,” he said in a statement. “While some may have hoped for a more definitive analysis, we simply cannot provide that at this time -- just as we cannot confirm or deny media reports of investigations tied to these events.”

In August, Bloomberg News reported that the CFTC, the U.K.’s Financial Conduct Authority and CME Group Inc. -- owner of the Nymex exchange where WTI contracts trade -- were examining whether actions tied to U.K.-based Vega Capital London Ltd. may have breached regulations and allowed traders at the firm to make a $500 million windfall on April 20. Vega hasn’t responded to multiple requests for comment about its trading.

Key Details:

  • Circuit breakers were triggered numerous times on April 20, according to the report.
  • The study examined different types of contracts, including Trade at Settlement, but didn’t say whether trading by any specific parties may have impacted the price of oil.
  • The majority of trading volume on April 20 was before 2 p.m. New York time, with price declines accelerating around noon that day, the CFTC said.
  • Open interest in the May West Texas Intermediate contract was unusually high, according to the CFTC.

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