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Bank of China says main investors to settle crude oil product at -$37

SHANGHAI/BEIJING (Reuters) - Bank of China Ltd (BoC) said its main investors will settle trades for its crude oil futures trading product at -$37.63 per barrel, after confirming that the negative settlement price was not a systemic error.

Known as the crude oil “bao”, or treasure, the structured product is sold by BoC to individual customers and is linked to domestic and foreign crude oil futures contracts, including West Texas Intermediate (WTI) and Brent.

The U.S. WTI futures collapsed below $0 a barrel on Monday for the first time because of a supply glut after restrictions to prevent the spread of the coronavirus hit demand.

Futures fell to minus $37.63 a barrel as desperate traders paid to get rid of oil.

BoC said on Wednesday it had confirmed with CME Group Inc that the negative settlement price of crude oil futures at -$37.63 per barrel was not an error.

“Currently all the main investors are going to settle their trades based on the exchange prices. We’ve also completed the May contract expiry process according to earlier agreement,” the bank added in a statement.

BoC had said in an earlier statement that it had suspended transactions to open new positions for the crude oil “bao” from Wednesday in light of “current market and delivery risks”.

On Tuesday the bank had suspended trading in both of its U.S. crude oil contract products for a day.

CME, which this month updated its systems to be able to process negative prices, said on Tuesday that its markets were working properly after crude futures sank into negative territory. It also told clearing firms and clients that it had a plan in place “if major energy prices continue to fall toward zero in the coming months.”

Global oil benchmark Brent has fallen 72% this year because of the global economic impact of the coronavirus pandemic and after major producer Saudi Arabia started a price war.

This led Chinese banks and funds to adjust or limit trading in oil related products and investments. Chinese mutual fund houses had restricted or suspended subscriptions in outbound oil and gas related funds following the fall.

Industrial and Commercial Bank of China (ICBC) in March adjusted the bid-ask spread for trading on global crude oil after prices fell to a 17-year low.

Reporting by Emily Chow in Shanghai, Cheng Leng, Chen Aizhu and Hallie Gu in Beijing; Editing by Christian Schmolllinger and Alexander Smith

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