A key Senate Democrat is urging U.S. regulators to conduct a thorough analysis of whether oil markets are susceptible to manipulation following a Bloomberg News report that documented how a small London firm made as much as $500 million when the price of crude went negative in April.
Senator Sherrod Brown of Ohio, the Banking Committee’s top Democrat, said Vega Capital London Ltd.’s trading profits indicate that “additional regulatory safeguards” are needed, according to a letter he sent Thursday to the Commodity Futures Trading Commission. He also questioned comments CFTC Chairman Heath Tarbert has made about what happened on April 20, when the price of oil hit -$37 a barrel.
Vega’s earnings were driven by about a dozen traders aggressively selling in unison before the May West Texas Intermediate contract settled at 2:30 p.m. in New York, Bloomberg reported Tuesday, citing people familiar with the matter who requested anonymity.
The CFTC, the U.K.’s Financial Conduct Authority and CME Group Inc., owner of the Nymex exchange where the trading took place, are examining whether Vega’s actions may have breached regulations on trading around settlement periods, the people said. The agencies and CME are also examining whether the transactions contributed to oil’s unprecedented fall into negative territory. Vega hasn’t responded to requests for comment.
Brown’s letter flagged comments Tarbert made during an April 21 interview with CNBC in which he said oil’s plunge appeared to be a “fundamental supply and demand issue.” The letter also cited a July 15 Financial Times article in which Tarbert said the CFTC hadn’t yet been able to assess “one way or another” whether there was any wrongdoing by market participants on April 20.
In his letter, Brown said Tarbert’s comments in the CNBC interview were “premature” and the remarks made to the Financial Times indicate the CFTC must continue to examine what triggered the price drop.
Brown’s letter takes Tarbert’s comments on CNBC “out of context,” Rachel Millard, a CFTC spokeswoman, said in an emailed statement. She said Tarbert indicated in that interview and elsewhere that the agency is looking to understand everything that might have been behind the drop, leaving open the possibility that “other technical factors could have played a role in addition to the more obvious fundamental macroeconomic factors.”
The CFTC is preparing to release a detailed report in the coming months on what happened in oil markets on April 20.