At least two brokerages are limiting the ability of some clients to enter into new trades in the most active oil benchmarks after an epic meltdown in crude this week dragged prices into negative territory for the first time.
The futures division of brokerage INTL FCStone Financial Inc. told clients with accounts totaling less than $5 million that they should not place any new trades in Nymex West Texas Intermediate and ICE Brent crude contracts for June delivery, effective Wednesday, according to a memo obtained by Bloomberg.
“The reason for taking this action is for the best interest of our customers during these very unprecedented market conditions,” according to the memo.
The firm is also actively reviewing limits for clients who have more than $5 million and may adjust accordingly.
“Given the extreme and unpredictable volatility in the markets, we are taking action to protect our smaller clients and make sure they are aware of the risks they are assuming,” a company spokesman said via email.
Meanwhile, Marex Spectron is also restricting customers from taking new positions in the same contracts, the company confirmed.
The limit for new trades is the latest example of financial firms trying to curb losses and reduce risk as the spread of the coronavirus has shut down economies around the world, causing oil demand to collapse. Investors have raised fears for months that crude storage filling to the brim would be disastrous for prices, as supply dwarfs demand.
Those concerns came into full force on Monday when U.S. oil futures for May delivery tumbled below $0 for the first time, settling at minus $37.63 a barrel. The May contract expired on Tuesday, with the most active contracts now for June delivery.
Investors fear that what happened in May could repeat itself in June, a move that’s already prompted a number of retail products to move their positions further into the curve.
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