Oil operators await NYMEX reaction to end of latest oil contracts

A month after oil futures plunged to nearly $38 negative, another oil contract for traders expires this week. And it’s led to a lot of speculation whether negative territory will be seen again.

Whatever happens, it might play a role in affecting any decision by Oklahoma regulators on a request to declare produced oil “waste” and allow more oil operators to shut-in their wells. Undoubtedly, many of those oil operators, big and small, will be paying more than passing interest in oil trading on Tuesday and Wednesday.

The Commodity Futures Trading Commission warned last week that a repeat of the oil market plunge on the New York Mercantile Exchange cannot be ruled out, according to Market Watch.

If it does, it’ll be an even greater plunge than a week ago as prices of West Texas Intermediate crude on Friday settled only 57 cents under the $30 a barrel mark, making for a 7% gain in trading for the day.

In a staff advisory, the regulator reminded exchanges, futures brokers and clearing houses that “they are expected to prepare for the possibility that certain contracts may continue to experience extreme market volatility, low liquidity and possibly negative pricing.”

The rare warning comes after the May contract for West Texas Intermediate crude made history on April 20, with prices tumbling below zero and settling in negative territory. The move came in thin trading as holders of long positions scrambled to exit amid a lack of available storage for delivering the crude a day ahead of the contract’s expiration.

In a footnote, the agency said the notice wasn’t intended to suggest that any particular markets or contracts will experience fundamental or technical issues.

The June WTI contract CL.1, +0.95% expires on May 19. Oil futures have gained ground since late April and storage-related worries have eased somewhat. Oil inventories in Cushing, Oklahoma, the delivery hub for Nymex futures, declined by 3 million barrels last week, the Energy Information Administration reported Wednesday, falling to 62.4 million barrels. Working storage capacity at Cushing stands at around 76 million barrels.

CME Group Inc. Chief Executive Terry Duffy told CNBC in the days following the slump into negative territory in the May contract that the exchange and regulators had been prepared for that possibility and that the “futures market worked to perfection.”

Interactive Brokers Group Inc. IBKR, -1.16% on Monday said it would recognize a revised $104 million loss as a result of the negative settlement as it fulfilled margin settlements with clearing houses and moved to compensate some customers for losses.

Source: Market Watch