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CFTC report into negative oil price falls short of naming culprits


The US futures market regulator declined to point fingers in crude oil’s collapse below $0 seven months ago, on Monday publishing a report on the shocking move that immediately disappointed critics. 

West Texas Intermediate oil futures settled at minus $37.63 a barrel on April 20, the first and only instance of negative crude prices since launching in 1983. The Commodity Futures Trading Commission began a review days afterwards.

CFTC staff published an “interim” report on their findings, but backed away from conclusive findings.

“There is not a super-simple story of what people were doing in the market that day,” said Scott Mixon, the agency’s acting chief economist. 

The 37-page report discussed fundamental factors in the global oil market, such as weak demand in the early days of the coronavirus pandemic and rapidly filling storage tanks at Cushing, Oklahoma, the place where traders must deliver under WTI futures contracts they have not unwound. 

It also presented aggregated data from the electronic markets operated by CME Group, whose New York Mercantile Exchange lists benchmark WTI futures. Notably, the report pointed out that open interest in WTI for May delivery had peaked at almost 635m barrels equivalent of oil, well above the average for expiring contracts worth about 430m barrels.

As futures crashed almost $58 a barrel to a low of minus $40 in the afternoon, CME’s price circuit breakers were triggered more than 30 times, temporarily halting but not stopping the slide, the study said.

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However, the report did not answer why oil prices fell below zero.

“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,” said Heath Tarbert, CFTC chairman.

Mr Tarbert, a Republican, in April said the crude oil plunge had appeared to be “a fundamental supply and demand issue”. CME chief executive Terry Duffy told CNBC at the time that “the futures market worked to perfection”. CME declined to comment on Monday.

Oil stocks at Cushing eventually topped out at only 65.5m barrels in early May, well below previous peak levels, suggesting that factors other than supply and demand were also at play in April. 

In mid-November, oil stocks at Cushing had again climbed to almost 62m barrels, according to the Energy Information Administration. However, WTI settled at $43.06 a barrel, almost $80 higher than its low in April.

Line chart of Million barrels, by week showing Oil stocks at Cushing in 2020 peaked below prior highs

Dan Berkovitz, a Democrat commissioner on the five-member CFTC, said that the report fell short.

“I’ve said since April the CFTC should determine what caused this historic price collapse on April 20. This doesn’t do that,” he said.

Mr Tarbert is expected to step down as chairman after the inauguration of Democratic president-elect Joe Biden. A new leader of the CFTC could initiate a different analysis of the events of April 20. 

The severity of the plunge triggered widespread losses, from retail investors in China to Interactive Brokers in the US, which reported losing $104m as it compensated customers. 

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Oil prices have since gained as Opec and allied oil exporters succeed in constricting supplies, while oil consumption has slowly rebounded with the easing of restrictions on travel during the pandemic.



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