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China’s Banks Halt Positions on Oil Products as Investors Burnt

imageCommodities6 hours ago (Apr 22, 2020 10:54PM ET)

(C) Bloomberg. Oil tankers sit anchored off the coast of Long Beach, California, U.S., on Wednesday, April 22, 2020. Almost three dozen ships — scattered in waters from Long Beach to the San Francisco Bay — are mostly acting as floating storage for oil that’s going unused as the coronavirus pandemic shutters businesses and takes drivers off the road. Photographer: Tim Rue/Bloomberg


(Bloomberg) —

China’s largest banks have suspended opening new positions on products linked to crude oil for individuals after the unprecedented crash in oil prices burnt many retail investors.

China Construction Bank Corp., Bank of China Co. and Bank of Communications Co. were among lenders that cited price volatility and liquidity risks for the suspensions, according to statements sent out on Wednesday and Thursday.

The announcements come after a Bank of China product linked to West Texas Intermediate collapsed to below zero, leading to an uproar among local investors questioning the validity of the settlement price and the bank’s handling of the contract rollover.

On Tuesday, Bank of China suspended trading for products linked to U.S. crude futures while it checked with exchange owner CME Group Inc. (NASDAQ:CME) on settlement arrangements for negative prices. It then stopped allowing new positions in its U.S. and U.K. crude products because of market and settlement risks.

By Wednesday, the bank said in a statement that the underlying settlement value for the May contract is minus 266.12 yuan a barrel. That’s roughly line with the Monday close of minus $37.63, but not with the actual $10 that was the price when the contract expired on Tuesday. The bank maintains that it settled the contract in accordance with guidelines previously disclosed to clients.

(C)2020 Bloomberg L.P.

China’s Banks Halt Positions on Oil Products as Investors Burnt

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