Crude Oil Prices go Negative: Harold Hamm Calls for CME Investigation

Crude Oil Prices go Negative: Harold Hamm Calls for an Investigation

Crude oil prices are having a hard time. The oil price war that sprang up between Saudi Arabia and Russia caused prices to fall. This was followed immediately by the worldwide lockdown to keep the coronavirus in check. The effort seems to be helping, but it pushed energy demand to unprecedented lows and oil prices right along with it. 

Oil storage is running low

According to Harold Hamm, the founder of Continental Resources Inc., President Trump was very responsive about the first problem that affected crude oil prices. OPEC and OPEC+ have come to terms with one another for the time being, and they have an agreement to make production cuts in an effort to bring crude oil prices back control. While the majority of the world is still hunkering down at home, the main issue remains one of supply and demand. There is too much supply and almost no demand. If these circumstances were not historic enough, on April 20 WTI crude oil futures on the CME ended the trading day in negative numbers.

Call for CME investigation over crude oil price going negative

Harold Hamm finds this highly suspicious and has called on the Commodity Futures Trading Commission (CFTC) to conduct an investigation of the CME for either possible market manipulation or a flawed new computer model. He wants the CFTC to investigate:

  1. The unusual announcement made by CME just hours before WTI prices went negative.
  2. The choice of changing computer models at a volatile time.
  3. The sudden $25 drop in a three minute span just before trading closed.

CME first announced on April 8 that they were testing plans supporting the possibility of negative trading options. They made the following announcement again on April 20 just hours before prices nose dived:

If WTI Crude Oil futures prices settle, in any month, to a price between $8.00 /bbl And $11.00/bbl, CME Clearing may switch its pricing and margining options models from the existing models to the Bachelier model, currently utilized in numerous spread options products where negative underlying prices and strike levels are a regular occurrence. If any WTI Crude Oil futures prices settle, in any month, to a level below $8.00/bbl, CME Clearing will move to the Bachelier model for all WTI Crude oil options contracts as well as all related crude oil options contracts effective the following trade date. CME Clearing will send out an advisory notice with one day notice before any implementation occurs with all appropriate details.

Crude oil prices fell $25 in 3 minutes

After this announcement, trading remained positive until around 22 minutes before the market closed. It dropped $40 in those 22 minutes with $25 falling in just a three minute span. Mr. Harold Hamm believes either market manipulation or the odd timing of switching the computer model has to be behind the history-making drop.

CME responded calling his allegations “factually inaccurate” and making this statement: Prices reflect fundamentals in the physical crude oil market driven by the unprecedented global impacts of the coronavirus, including decreased demand for crude, global oversupply, and high levels of U.S. storage utilization.

A CFTC spokesman declined to comment other than to say, “We continue to look at these developments closely.” And we will also continue to closely monitor not only Harold Hamm’s requested investigation but also crude oil prices and energy demand as the world starts to get back to work in the coming weeks and months. 


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