A long-awaited U.S. government report on the April 20 oil crash will stop blaming specific traders or companies and refrain from recommending structural changes for the crude market, said three people familiar with the matter.
theThe Commodity Futures Trading Commission review, which could be released as early as next week, will chronicle the unusual market dynamics of the day and its trade flows, the people said. Still, he won’t come to a definitive conclusion about what drove oil down to – $ 37 a barrel – the first time it traded negatively.
The document – the product of a lengthy analysis by economists and market surveillance officials – is not binding, so it will not prevent a CFTC chief appointed by President-elect Joe Biden from applying stricter rules. Additionally, a key factor that could influence future policy decisions was not incorporated into the report: an ongoing investigation by the CFTC’s enforcement division to determine whether manipulative or reckless trading contributed to the dive. rough.
Pressure has mounted on the CFTC to get to the bottom of what triggered the unprecedented plunge in West Texas Intermediate futures – the world’s most traded oil instrument. As prices rebounded hours later, retail investors, brokers and oil producing countries were all among the losers for the day. CFTC Chairman Heath Tarbert, a Republican chosen by President Donald Trump, said the agency was taking a “deep dive” into what happened.
A spokesperson for the CFTC declined to comment.
The report will focus heavily on macroeconomic factors such as the impact of the coronavirus pandemic on demand for oil, said people who asked not to be named when discussing a document that is not. still public. He will also refer to the lack of storage space in Cushing, Oklahoma, where holders of expiring WTI contracts are forced to take physical delivery of the crude, the people said.
In addition to failing to propose structural reforms to the oil market, the report refrains from suggesting specific contract revisions, the sources said. The document, which could still change before its release, will also not name specific companies or traders.
Since WTI’s historic plunge, market players have made changes themselves. Many clearing houses now limit the share of contracts closest to exchange-traded funds and passive oil funds that can accumulate and the models have been adjusted to account for negative prices. Meanwhile, a glut of crude that helped lower prices receded and demand rebounded with a pickup in economic activity.
Read more: Traders’ Oil Bets Get New Federal Limits Under CFTC Regulations
Within the CFTC, the report has been the subject of fierce debate, with some officials arguing that its release should be delayed until the agency completes its review to determine whether any misconduct contributed to the crash of the oil. The feuds underscore the balance the agency faces by providing a quick assessment of what happened, while deeply probing potential wrongdoing.
A few months after the 2010 flash crash on stocks and futures, the CFTC released a joint report with theSecurities and Exchange Commission which largely attributed responsibility for the temporary market collapse to macroeconomic conditions and reckless ordering from a Kansas mutual fund. This conclusion was called into question in 2015, when the CFTC filed a lawsuit against British trader Navinder Singh Sarao, suggesting that his manipulative trade helped stir up the uproar.
Read more: The work-from-home trader that rocked global markets
In August, Bloomberg News reported that the CFTC, the UK’s Financial Conduct Authority andCME Group Inc. – owner of the Nymex exchange where WTI contracts are traded – was examining whether shares related to Vega Capital London Ltd. Vega did not respond to multiple requests for comment on its trading.
Read more: London traders hit $ 500 million jackpot when oil turned negative
Vega’s profits involved instruments called settlement trading, or TAS, according to people familiar with the matter. When using the products, buyers and sellers agree to trade where the price ends at 2:30 p.m. on settlement days such as April 20, when the closing price of a monthly contract is determined. The CFTC report will discuss the TAS mechanism, the people said, but it will not detail how the negotiation of the instruments by specific parties may have impacted the price of oil.
– With the help of Kit Chellel and Andres Guerra Luz
(Updates with CFTC declining to comment in fifth paragraph.)