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U.S. Commodity Futures Trading Commission warns next wave of negative oil prices

18 May 2020

The U.S. Commodity Futures Trading Commission on Wednesday (13 May) issued an advisory to remind Debt Capital Market (DCMs), Futures Commission Merchants (FCMs), and Derivatives Clearing Organization (DCOs) that they are expected to prepare for the possibility that oil prices may continue to experience extreme market volatility, low liquidity and possibly negative pricing. 

The Commission emphasized that the subject of the notice applies equally to trading in other commodities, and registrants should remain vigilant and prepare accordingly.

In addition to considering risk controls and related issues, it encouraged DCMs, FCMs, and DCOs to ensure their customers and members have appropriate information on the risks and technical elements of contracts and trading around upcoming expirations.

It reminded exchanges to ‘maintain rules to provide for the exercise of emergency authority’ to the extent that they should ‘suspend or curtail trading in any contract’ where necessary. 

The Commission said the warning was issued: ‘in the wake of unusually high volatility and negative pricing experienced in the May 2020 West Texas Intermediate (WTI)’, which resulted in the global crash of oil prices in April, signalling the possibility of a repeat of events as the next WTI June contract expiry.

The complete document is available for download here.

Photo credit: U.S. Commodity Futures Trading Commission
Published: 18 May 2020

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