Bank of China Seeks CME Group Probe in Negative Oil Prices

Losses from a crude oil product marketed to retail investors by the Bank of China exceeded $1.3 billion.

Bank of China is pressing Chicago-based CME to probe whether market manipulation or system failure was behind the unprecedented plunge in West Texas Intermediate, the U.S. crude benchmark.

The bank said today it hired lawyers to send a letter to CME Group, urging the exchange operator to investigate reasons behind negative oil prices and “abnormal fluctuations” in crude futures on April 21, according to a Reuters report.

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The news came a few days after the Caixin financial news outlet reported on Sunday that total losses from a crude oil product marketed to retail investors by the Bank of China could be more than $1.3 billion.

The huge losses came on the heels of Monday’s price crash, which took U.S. oil futures into negative territory for the first time. Desperate traders at one point paid potential buyers up to $40 a barrel to take oil that they can’t accept for delivery on May’s expiring futures contract.

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The BoC said it was seeking to respond to its customers’ “reasonable requests” as early as possible while it continues negotiating with investors, shoulder responsibilities under the current legal framework.

The letter is believed to be the first request by a foreign entity to the CME and US regulator to probe Monday’s trade. Similar calls arose in the US last week with many requesting a wider probe into possible market manipulation, failed systems or computer programming failures.

CME, however, said the volatility in oil prices was due to fundamental supply and demand issues, and not related to financial markets functions. It refuted allegations and said negative prices reflected fundamentals in the physical crude oil market driven by the impacts of the coronavirus, including decreased demand, supply glut, and constraints on crude oil storage.

What’s more, the exchange has changed its computer systems to allow negative pricing in WTI futures contract, anticipating that markets could see a repeat of negative oil prices.

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