Oil price swings manipulation? Likely not, says CFTC

The ballooning supply of crude was no surprise to global markets

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When oil prices took a dive into negative territory this week for the first time in history, the sharp and violent move caught many -- but not everyone -- off guard.

Now, oil tycoon Harold Hamm, who runs Continental Resources, is calling on the Commodity Futures Trading Commission, in a letter this week, to investigate possible market manipulation.

TickerSecurityLastChangeChange %
CLRCONTINENTAL RESOURCES17.67+0.16+0.91%

While the 305 percent drop in West Texas Intermediate Crude on Monday to -$36.73 per barrel was unprecedented and has since undergone a very modest recovery, the volatility and ballooning supply glut in crude had been making headlines across the globe for months.

OIL CRASHES TO 305% to -$36.73 A BARREL

In a statement to FOX Business, the CFTC, the regulator for U.S. derivatives, said market fundamentals are likely at play, not bad actors.

“The CFTC is surveilling these markets with a fine-toothed comb on a daily basis and we increased that monitoring after we first began seeing volatility nearly two months ago. This appears to be a fundamental supply and demand issue, but we’re continuing to closely examine it so we understand all of the particulars," said a CFTC spokesperson.

RUSSIA, SAUDIS ATTACKING US SHALE INDUSTRY, OIL TYCOON HAROLD HAMM SAYS

FOX Business' inquiries to Hamm were not returned at the time of publication. Last month, when oil was falling, he accused Saudi Arabia and Russia of trying to put the U.S. shale industry out of business, a move Saudi Energy Minister Prince Abdulaziz Bin Salman denied to FOX Business.

SAUDI ENERGY MINISTER DENIES US SHALE INDUSTRY WAS A TARGET AS OIL COLLAPSED

The oversupply of worldwide crude is no secret. Even before WTI futures turned negative, oil had lost over 60 percent this year, largely due to fallout from the coronavirus.

Industries that use crude have come to a standstill across the globe; airlines are grounded, cruise lines idled and most of the world is working from home, no longer driving to offices and plants. Adding to the building supply, Saudi Arabia and Russia squabbled in a price war, delaying a critical OPEC production cut as oil swelled and prices slumped.

WITH OIL BELOW ZERO, TRUMP TO CREATE STRATEGIC PETROLEUM RESERVE HISTORIC BUYING OPPORTUNITY

Even President Trump regularly commented on the cheap price of oil in the weeks leading up to the dramatic drop into the red. Trump has advocated, most recently on Monday, his desire to fill up the Strategic Petroleum Reserve, if Congress will approve the move. He also tasked U.S. Treasury Secretary Steven Mnuchin to explore keeping the U.S. energy industry vibrant despite the collapse in crude prices.

TREASURY SEC. MNUCHIN MAY BE TASKED TO REVIVE ENERGY INDUSTRY

TickerSecurityLastChangeChange %
CMECME GROUP INC173.37+0.19+0.11%

Ironically, the CME had an ominous warning for professional traders on oil supply that came on April 8, 2020, in the form of an advisory notice.

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SUBJECT: CME Clearing Plan to Address the Potential of a Negative Underlying in Certain Energy Options Contracts
“CME Clearing is ready to handle the situation of negative underlying prices in major energy contracts and we want to give all of our clearing firms, customers, and partners a view into what the CME Clearing plan is so that each of our partners can do their own respective planning for this potential situation…”

- CME Advisory Notice, April 8. 2020 

CME PREPS FOR OIL TO REMAIN NEGATIVE

Following oil's negative turn this week,  a spokesperson for the CME told FOX Business that markets functioned appropriately for the oversupplied commodity.

"CME Group markets worked as designed. Our futures 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.  After advance notice to our regulator and the marketplace in early April,  CME Group accommodated negative futures prices on WTI on April 20 so that clients could manage their risk amid dramatic price moves."

Too much supply and too little demand means the world will likely run out of places to store crude as soon as next month, which could add further pressure to crude futures, according to Stephen Schork of The Schork Report.

"Sooner rather than later, you are not going to be able to store any more oil,” he told FOX Business, noting that production in the U.S. remains too high and needs to come down by 1 million barrels per day, at least, until the American economy gets running again.

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