Kirk McKoy/Los Angeles Times via Getty Images
- The US Commodity Futures Trading Commission said in a notice on Wednesday that participants should brace for negative oil prices again when the June WTI contract expires next Tuesday.
- Oil went negative for the first time in April right before the May futures contract expired and anyone holding the contracts had to take physical delivery of their oil.
- With limited storage due to tumbling global demand, oil prices fell below zero as traders chose to lose money rather than scramble to find storage space.
- Track the price of WTI live on Markets Insider.
In a notice on Wednesday, the CFTC urged participants to “maintain rules to provide for the exercise of emergency authority, as is necessary and appropriate, including the authority to liquidate or transfer open positions in any contract; to suspend or curtail trading in any contract.”
“We are issuing this advisory in the wake of unusually high volatility and negative pricing experienced in the May 2020 physically-delivered WTI contract, and related reference contracts, on April 20,” the notice added.
But the CFTC stressed that the notice applied equally to trading in other commodities.
US oil prices turned negative for the first time in history on April 20, a day before May futures contracts expired and traders holding them had to take physical delivery of their oil.
A lack of storage options, particularly at a key facility in Cushing, Oklahoma, and the reduction in demand for the commodity because of the coronavirus pandemic both contributed to WTI’s historic price crash. Traders opted to take a loss to sell their oil rather than find storage space for it.
Coronavirus-related shutdowns in much of the world and the drop-off in international travel have battered the demand for oil and greatly reduced manufacturing output.
Read more: We surveyed 10 money managers about how they’re handling the pandemic. They each shared their favorite hidden gems in the market, surprising trades they’re making, and the big bets they can’t live without.
The negative oil prices caused major jitters worldwide and inflicted substantial losses on many traders.
The trading platform Interactive Brokers, for instance, has said the crash cost it more than $100 million; it has had to compensate investors because of a glitch that meant some couldn’t see the negative prices.
Thomas Peterffy, the founder and chairman of Interactive Brokers, told Bloomberg that oil turning negative revealed bugs in the company’s software and that it would refund any customers who were locked in long positions when the price was below zero.
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