Posted In:

Oil Futures, WTI


#333
Pool Full Of Oil

Published:

Apr 25, 2020


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Posted In:

Oil Futures, WTI

Published:

Apr 25, 2020


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When the internet is flooded with questions like “can I store oil in my pool?” - it is fair to assume some retail investments are going to sink…

West Texas Intermediate (WTI) oil futures contracts for May reached a startling negative $37.63. Despite the softness in demand, some are speculating that WTI futures fared worse than their peers because they have to be settled physically – unlike (British) Brent futures which are settled financially.

ETFs, which own large baskets of these futures, are the conduit for retail investors to buy oil futures. While futures prices can clearly go negative, an ETF – as a security – can’t trade at prices below zero.

Brokers who facilitate their customer's ETF investments end up footing the bill with the clearinghouses when the price hits subzero. Interactive Brokers, one of the largest publicly traded brokers, fulfilled the variation margin settlements on behalf of customers and recognized an ~$88m provisionary loss.

CME Group, which controls 90% of global futures, had just changed its computer systems earlier this month to allow negative pricing in WTI. Other exchanges may have not fared as well – sticking to older mainframes and unable to logically understand negative pricing.

Capital markets technology is continually being put to the test: Y2K, NYSE going digital for the first time (our Mar 21 newsletter), and Crypto exchanges gargantuan plunge last month.

While retail investors were searching the web for oil storage options – some were lucky their losses were capped at 100%...

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Pool Full Of Oil


Why is the oil price negative and can you buy some? You must have a membership to trade directly on this market. To be a member you must be “an adult possessing good moral character, a good reputation, business integrity, and adequate financial resources to assume the responsibilities and privileges of membership.” You also have to pay a fee, which costs roughly $100,000. Or you can do it through a broker. Read more

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