A month after sellers had to pay nearly $40 a barrel to get rid of U.S. oil futures, the next watershed moment looms with the expiry of the June contract on Tuesday - and so far there is little sign of a repeat of the historic plunge.
FILE PHOTO: Flames emerge from flare stacks at Nahr Bin Umar oil field, north of Basra, Iraq September 16, 2019. REUTERS/Essam Al-Sudani/File Photo
A month later, governments around the world are slowly lifting travel restrictions and there are signs that demand is recovering from its nadir. Oil prices have staged something of a recovery, with U.S. crude at nearly $30 a barrel. “But will it be enough to avert another panic selling moment? The odds have certainly reduced ... there’s a fine line between confidence and complacency and we can only hope that line hasn’t been crossed or early next week it could quickly unravel.”
The Chicago Mercantile Exchange, which hosts the trade in WTI futures, last week raised maintenance margins for the June contract by 20%. That would make it too expensive for some smaller retail investors to hold many open positions ahead of expiry. Open interest in June is already dwindling as a result of those moves, standing at about 75,000 lots on Thursday, Refinitiv Eikon data showed. That was down from nearly 135,000 lots on Wednesday.PLUNGE AFTERMATH
“This would have avoided a financial effect on futures traders due to the allowance of negative prices that we conservatively estimate in the $3.8 billion range.”
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