CFTC Report on Negative Oil Prices Leaves Key Questions Unanswered
The Commodity Futures Trading Commission looked into why oil prices plummeted into negative territory in April, but its report didn’t single out any likely cause
WASHINGTON—A long-awaited Commodity Futures Trading Commission report into the collapse of crude-oil futures to minus $40 a barrel in April has declined to identify a reason for the crash, prompting criticism from one of the agency’s own commissioners.
The rapid descent into negative territory on April 20 sparked calls from market participants and others for a swift and thorough investigation by federal regulators.
“While some may have hoped for a more definitive analysis, we simply cannot provide that at this time,” CFTC Chairman Heath Tarbert said in a statement Monday.
The CFTC said in the report that a global surplus of crude oil in early 2020, cratering energy demand amid the Covid-19 pandemic, and concerns about storage capacity “coincided with, and may have influenced,” the price spiral. The report also pointed to “a number of technical factors related to market structure,” without singling out any likely cause.
Until this spring, negative oil prices had occurred in a handful of energy-futures markets, but never in West Texas Intermediate—the flagship contract for a commodity that is vital to the global economy. The April 20 price decline immediately raised suspicions of abusive trading, market manipulation or systems glitches—any of which would likely require further action by regulators.
Speaking on CNBC the day after the price crash, Mr. Tarbert said “it does appear to be a fundamental supply-and-demand issue.”
Dan Berkovitz, one of two Democrats on the five-member CFTC, said the report left a number of key questions—some of which the agency is uniquely positioned to investigate using confidential information it can access—unanswered.
The report failed to analyze why oil prices in the futures market diverged from prices in the physical market on April 20, but converged again on April 21, Mr. Berkovitz said. It didn’t provide sufficient analysis of storage capacity at Cushing, Okla., where WTI oil is delivered, he said, nor did it didn’t analyze the role of so-called trade-at-settlement contracts, whereby market participants agree over the course of a trading session to buy or sell a futures contract at the settlement price for that day. And it didn’t provide new insight into why prices fell from $0 to minus $40.32 in a 20-minute span, Mr. Berkovitz said.
“The issuance of an incomplete preliminary Report is a disservice to the public, market participants, and small and large businesses that depend on a reliable crude oil futures benchmark for contract pricing, risk mitigation, and price discovery,” he said.