CME Group preparing for possibility negative oil prices persist

Changes go into effect at end of trading on April 22

CME Group is preparing for the possibility that crude oil prices could trade below zero for an extended period of time.

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The Chicago-based exchange operator will switch its options pricing and valuation model to Bachelier -- a system named for the 20th-century French mathematician Louis Jean Baptiste Bachelier who studied options markets -- in order to accommodate negative prices in futures of some energy products.

The changes will go into effect following the end of trading on Wednesday and remain in place until further notice.

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“Market participants rely on physically-delivered futures contracts to efficiently hedge and transfer their risk during these uncertain times, and we are taking additional proactive steps to ensure that our products can reflect the prices of the underlying physical commodities," CME Group told FOX Business in a statement.

"As the deepest and most liquid crude oil benchmark globally and the only futures contracts tied directly to the physical commodity, WTI futures prices reflect current market fundamentals created in large part by the unprecedented coronavirus pandemic shutdown, including decreased global demand for crude, global oversupply, and high levels of storage utilization in the United States," CME Group added.

West Texas Intermediate crude oil futures for May delivery plunged below zero on Monday, the first time in CME history that the commodity traded in negative territory. Other commodities, like natural gas, have previously seen their prices fall below zero.

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While WTI futures for May delivery settled at -$10.36 a barrel on Monday, they expired a day later at $10.01. June futures were trading higher by 23 percent near $14.25 a barrel on Wednesday.