The 20 Minutes That Broke the U.S. Oil Market

[Tom Kirkman + 8,860]

Presented without my usual long-winded comments.

The 20 Minutes That Broke the U.S. Oil Market

(Bloomberg) It was evident from the very beginning on April 20 that the oil market was headed for trouble.
Frantic sell orders had been pouring in overnight and any traders who connected to the Nymex platform that morning could see a bloodbath was coming. By 7 a.m. in New York, the price on a key futures contract — West Texas Intermediate for May delivery — was already down 28% to $13.07 a barrel.

Thousands of miles away, in the Chinese metropolis of Shenzhen, a 26-year-old named A’Xiang Chen watched events unfold on her phone in stunned disbelief. A few weeks earlier, she and and her boyfriend had sunk their entire nest egg of about $10,000 into a product that the state-run Bank of China dubbed Yuan You Bao, or Crude Oil Treasure.

As the night wore on, A’Xiang began preparing to lose it all. At 10 p.m. in Shenzhen — 10 a.m. in New York — she checked her phone one last time before heading to bed. The price was now $11. Half their savings had been wiped out.

As the couple slept, the rout deepened. The price set new low after new low in rapid-fire succession: the lowest since the Asian financial crisis of the 1990s, the lowest since the oil crises of the 1970s, the first time ever below zero.

And then, in a 20-minute span that ranks among the most extraordinary in the history of financial markets, the price cratered to a level that few, if any, thought conceivable. Around the world, Saudi princes and Texan wildcatters and Russian oligarchs looked on with horror as the world’s most important commodity closed the trading day at a price of minus $37.63. That’s what you’d have to pay someone to take a barrel off your hands.

Many things about the explosive, flash-crash-like nature of the sell-off are still not fully understood, including how big a role the Crude Oil Treasure fund played as it sought to get out of the May contracts hours before they expired (and which other investors found themselves in the same position). What is clear, though, is that the day marked the culmination of the oil market’s most devastating crisis in a generation, the result of demand drying up as governments around the world locked down their economies in an attempt to manage the coronavirus pandemic.

For the petroleum industry, it was a grimly symbolic moment: The fossil fuel that helped to build the modern world, so prized it became known as “black gold,” was now not an asset but a liability.

“It was mind-bending,” said Keith Kelly, a managing director at the energy group of Compagnie Financiere Tradition SA, a leading broker. “Are you seeing what you think you’re seeing? Are your eyes playing tricks on you?”  ...

 

     (Much more in the link)

 

[surrept33 + 609]

Looks like a mess:

From https://www.wsj.com/articles/crude-oil-treasure-turns-toxic-for-chinese-bank-and-its-small-investors-11587642511

Quote

The oil investment product sold by Bank of China was marketed to individuals large and small, who could buy or sell it with a few taps of the bank’s mobile app. The minimum investment amount was the equivalent of about $61, according to a marketing document, and investors could place bets on price moves in either WTI crude or Brent. The bank collected fees for facilitating various transactions.

The trouble for Bank of China’s investors came because the life of one of its products ended on Monday, as futures for May delivery went negative, a statement from the bank showed. That timing effectively resulted in holders being cashed out at minus $37.63 a barrel—meaning whatever they had invested was wiped out.

Bank of China’s clients might also be on the hook for more money than they put into the investments. The product’s contract terms say Bank of China can dip into investors’ other accounts with the bank to make up any shortfall.

Jefferies analysts, citing a screenshot published by Chinese media, calculated that 3,261 investors owed Bank of China collectively the equivalent of about $52.2 million. The analysts said this figure was also consistent with traders’ estimates.

However, the bank itself could ultimately incur a loss of roughly $28 million to $71 million, given the possibility of lawsuits, arbitration and fines, the Jefferies team said. Bank of China didn’t immediately respond to a request seeking comment. In a filing, it said it would handle “follow-up matters” in accordance with laws and regulations.