On 20 April 2020 the front delivery month in NYMEX WTI crude oil (May 2020) had a trading range of $58.17 a barrel or $58,170 per contract.
The GE-F program is not suited or capitalized for this type of volatility and is off our recommended list effective 21 April 2020, if you have questions or would like to change to a more suitable energy program please contact me.
At the same time May 2020 Crude Oil had a range of $58,170 per contract all other delivery months, on every exchange including the NYMEX and the cash market had ranges between $0.80 to $4.83 or $800 to $4,830 per contract versus May’s $58,170.
All other delivery months on the 20th on all exchanged including the NYMEX closed positive yet May 2020 was negative $37.63.
This chart shows May 2020, versus June 2020 and cash market.
Storage was not the culprit.
Granted Cushing storage was near capacity at 87% but their storage rates reflected it at $1.21 per barrel per month, I’ve paid as low as $0.18.
It’ Important to note when you take delivery of a NYMEX, WTI crude oil contract your oil is already at Cushing, Cushing is the only location you can deliver oil to or from to satisfy a NYMEX WTI crude oil contract.
What makes this price action even more absurd is the May 2020 contract rallied $47.84 a barrel on Tuesday the 21st April 2020 to settle at $10.01 a barrel to be back in line with other delivery months.
On the 5th of May 2020 the front delivery in NYMEX crude settled at +$24.56 a barrel up $62.19 per barrel from the 20th of April’s -$37.63 close.
On this move we we’re dinged for nearly $20,000 per contract trading the front delivery month (May 2020), adding insult to injury we bought crude at $1.77 a barrel the previous 30 year low was $10.80 barrel, we were of the belief there would be major support near zero and proved wrong.
Problem trading the front delivery months in energy
Front delivery months in all energy futures don’t have underlying options to hedge position risk as they approach delivery, nor do they have price limits (limit = maximum price movement allowed during a given trading day)
This leaves the front delivery months susceptible to price manipulation even in a market as large as WTI crude, normally this manipulation is manageable as of the 20th of April 2020 this is no longer the case.
GE-F trades the front delivery months, because risk cannot be objectively defined in this program we’ll be staying clear of WTI until NYMEX and the CFTC can prove they can effectively regulate the front months in energy.
I have to say I will miss the GE-F program it’s has ha some exceptional runs over the last 6 1/2 years but markets change and programs fail risking $20,000 in a market that moves $58,170 per contract in a few hours in a $50,000 account is just irresponsible.
We will continue to trade all other energy programs and markets where risk per trade can be objectively defined using premium neutral option strategies or we have a delivery procedure in place. If we can’t take delivery and/or objectively define risk we won’t trade the program.
If you have any questions please contact me.