US Futures regulator cautions on volatile crude oil contracts

The US Commodity Futures Trading Commission (CFTC) has warned market participants to be prepared that certain commodity contracts may see possibly negative pricing and extreme volatility in the light the negative pricing of crude oil seen last month.

The CFTC has issued an advisory on risk management and market integrity under the current market conditions in the wake of the unusually high volatility and negative pricing experienced in the May 2020 West Texas Intermediate (WTI) light sweet crude oil futures contract on April 20 (the penultimate day of trading and expiration of the contract).

The Commission has emphasised that the subject of this advisory applies equally to trading in other commodities and the registrants should remain vigilant.

The CFTC said that the onset of the Covid 19 pandemic has adversely affected the economies of the US and other major countries.

Global markets, including those regulated by the CFTC, have been affected by both fundamental and global factors this year as economies and industries have slowed down dramatically or shut down completely, resulting in unprecedented market impacts.

This economic downturn has coincided with substantially increased market volatility in key agricultural, energy and financial sectors, including the futures and options on futures markets regulated by the Commission, it said.

The impact of fundamental and technical factors has been particularly acute for contracts that call for physical delivery of the underlying commodity as demonstrated by the unprecedented price movements in certain commodities, the Commission said.