Sources: US oil-crash study won’t blame traders, firms
A highly anticipated U.S. government report on the April 20 oil crash will stop short of blaming any specific traders or firms, and refrain from recommending structural changes for the crude market, said three people familiar with the matter.
The Commodity Futures Trading Commission review, which could be released this week, will chronicle the day’s unusual market dynamics and its trading flows, said the people. Yet it won’t draw a firm conclusion for what caused oil to plunge to minus-$37 a barrel — the first time it ever traded at a negative price.
The document — the product of a lengthy analysis by economists and market-oversight officials — isn’t binding, so it won’t prevent a CFTC chief appointed by President-elect Joe Biden from pursuing tougher rules. Plus, a key factor that might influence future policy decisions wasn’t incorporated into the report: an ongoing investigation by the CFTC’s enforcement division into whether manipulative or reckless trading contributed to crude’s nosedive.
Pressure has been mounting on the CFTC to get to the bottom of what triggered the unprecedented plunge in West Texas Intermediate futures — the world’s most-widely traded oil instrument. While prices bounced back a few hours later, retail investors, brokers and oil-producing nations were all among the day’s losers. CFTC Chairman Heath Tarbert, a Republican picked by President Donald Trump, has said the agency is conducting a “deep dive” into what happened.
The CFTC didn’t respond to a request for comment.
The report will focus
heavily on macroeconomic factors such as the impact that the coronavirus pandemic had on demand for oil, said the people who asked not to be named in discussing a document that isn’t yet public. It will also reference the lack of storage space in Cushing, Oklahoma, where holders of expiring WTI contracts are obligated to take physical delivery of crude, the people said.
In addition to not proposing oil-market structural reforms, the report refrains from suggesting revisions to specific contracts, the people said. The document, which could change before it’s published, also won’t name specific firms or traders.
Since WTI’s historic plunge, market participants have made changes. Many clearinghouses now limit how much of the nearest contract exchange-traded funds and passive oil funds can accumulate, and models have been adjusted to account for negative prices. Meanwhile, a glut in crude that contributed to the price decline has receded, and
demand has bounced back with an uptick in economic activity.
Within the CFTC, the report has been the subject of fierce debate, with some officials arguing that its publication should be delayed until the agency finishes its examination into whether misconduct contributed to oil’s crash. The squabbling underscores the balancing act the agency faces in providing a swift assessment of what happened, while thoroughly probing potential wrongdoing.
A few months after the 2010 flash crash for stocks and futures, the CFTC published a joint report with the Securities and Exchange Commission that largely pinned the blame for the temporary market collapse on macroeconomic conditions and a reckless order by a Kansas mutual fund. That conclusion was called into question in 2015, when the CFTC brought a case against British trader Navinder Singh Sarao suggesting his manipulative trading had helped cause the tumult.