Hamm thinks Chicago Mercantile Exchange contributed to negative oil prices


Oilman Harold Hamm, the man who founded Continental Resources and has the ear of President Trump to advise him about energy issues thinks the Chicago Mercantile Exchange has done the industry wrong.

As The Oklahoman reported Wednesday, Hamm is requesting an investigation of crude oil futures for possible market manipulation, failed systems or computer programming failures and oil futures contracts.

In a letter signed Tuesday, Hamm, the founder and executive chairman of Continental Resources Inc., asked the Commodity Futures Trading Commission to examine the oil futures traded on the Chicago Mercantile Exchange.

The letter claims “the unprecedented, historical event of WTI (West Texas Intermediate) crude oil trading at negative prices for the first time in history and the circumstances surrounding the trading shows the system failed, negatively impacting a significant part of the American economy.”

WTI contract prices closed last week at $18.27. Prices dropped $55.90 per barrel and closed at -$37.63 on Monday, a 306% decrease.

Hamm points out the Chicago Mercantile Exchange announced April 8 that if WTI oil futures settled at a price between $8 and $11 a barrel that the exchange could switch to a different model that would allow for negative pricing.

He quotes the exchange’s announcement in his letter, which said in part, “CME Clearing will send out an advisory notice with one day notice before any implementation occurs with all appropriate details.”

On Monday morning the exchange reiterated WTI futures can trade negative, which sent the May contract plummeting to about $4 a barrel. Trading volume became more active after the announcement, Hamm said.

Prior to the announcement regarding negative settlements, the contract was trading positive, Hamm said. The WTI futures price for the May contract remained positive until the afternoon.

“As noted, this is the first time in history the WTI crude oil price settled below zero with most, if not all of the price decline occurring in the last 22 minutes of trading,” Hamm said.

The announcement, the change in pricing models and the large drop in the final 22 minutes of trading are described by Hamm as being “unprecedented” and materially affects the Calendar Monthly Average pricing of the physical barrel and “strongly raises the suspicion of market manipulation or a flawed new computer model.”

The sanctity and trust in the oil and all commodity futures markets are at issue as the system failed miserably and an immediate investigation is requested and, we submit, is required,” Hamm said. “In addition to a review of practices at the CME, we strongly urge the market to change to a daily weighted average price to reflect the trading value experienced throughout the trade month.”

Source: The Oklahoman