Bank of China Asks CME to Probe Abnormal Fluctuations in Oil Prices

The Bank of China asks the Chicago-based CME to find out the reason for the unprecedented downfall of West Texas Intermediate (WTI), the US crude benchmark.

30 April, 2020 | AtoZ Markets –  Oil prices fell this year due to a collapse in global demand for coronavirus, a price war unleashed by Saudi Arabia and Russia. The shortage of storage for excess oil also led to a sharp drop in many oil-linked products. Bank of China (BoC) said it had hired lawyers to formally send letter CME Group. It urges the operator to investigate reasons behind “abnormal fluctuations” in crude oil futures prices. The Bank of China asks CME to find out the reason.

The BoC has stated that it seeks to respond to “reasonable requests” from its customers as soon as possible. It is continuing to negotiate with investors, to assume its responsibilities under the current legal framework. The letter would be the first request by a foreign entity to the CME and the American regulator to probe Monday’s transaction. Similar calls arose in the United States last week, many calling for further investigation into possible market manipulation, system or computer programming failures.

Retail Investor Losses Estimated at $1.3B

The BoC statement comes after the price of May’s WTI crude oil contract fell below zero for the first time. It was at -$40 a barrel on 20 April. CME had updated its systems in early April to be able to deal with negative prices. The total losses of a crude oil product sold to retail investors by the BoC could be more than 9 billion yuan ($ 1.3 billion).

The huge losses followed Monday’s price crash, which pushed US oil futures into negative territory for the first time. Desperate traders have at one point paid potential buyers up to $40 a barrel to take oil. But they cannot accept that for delivery on May’s expiring futures contract.

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China Construction Bank (CCB) and Industrial and Commercial Bank Of China (ICBC) also offer similar crude oil products. But They renewed their investor positions several days before the contract expired. Bank of Communications Co Ltd (BoCom) said the drop in WTI crude oil futures prices in the negative territory had no impact on its customers. It had rolled over or closed its positions on 14 April, according to local media.

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