At a time when prescience and anticipatory action are lacking pretty much everywhere, you’ve got to hand it to the Chicago Mercantile Exchange in terms of timing.
CME had just changed its computer systems earlier this month to allow negative pricing in WTI, anticipating such a scenario, and many traders had discussed it as a possibility.… “It’s not a price that makes you feel good,” he said. “But the reality is, there is oversupply, there is under-demand that’s virus-driven, and there is nowhere to put the stuff.”
That is, you’ve got to hand it to them unless you are an oil company or widely-traded oil exchange-traded fund, in which case the move to allow oil futures to go sub-zero just like any other commodity contract looks less like foresight and more like foul play.
In a Tuesday letter signed by oil tycoon Harold Hamm, executive chairman of Continental Resources Inc., the company asked CME’s regulator, the U.S. Commodity Futures Trading Commission, to investigate whether “possible market manipulation, failed systems or computer programming failures” caused the drop into subzero prices.
“The sanctity and trust in the oil and all commodity futures markets are at issue as the system failed miserably,” Mr. Hamm told the CFTC. Continental also filed a similar complaint with CME’s market-regulation department.
USCF, the manager of the fund, said that it will execute a one-for-eight reverse share split for USO that will go into effect after the close on April 28.... On Tuesday USCF said that going forward the fund would hold longer-term West Texas Intermediate contracts instead of just focusing on the front month contract…. USCF also said that it was temporarily suspending the issuance of so-called creation baskets. Creation baskets are how an ETF creates new shares to meet demand.
On the bright side, the whole thing is really keeping Kyle Bass’ spirits up.
Negative Oil Prices Pose Headache for Futures Giant CME [WSJ]
The oil ETF trying to avoid imploding on retail investors attempts another trick with reverse split [CNBC]
US Oil Fund drops 25% after changing structure again as popular ETF tries to stave off collapse [CNBC]