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Oil plunge due to fundamentals, not financial markets: CFTC chairman

(Reuters) - The volatility in oil prices is due to fundamental supply and demand issues, not a financial markets issue, and is likely to persist as uncertainty around the coronavirus continues, Heath Tarbert, chairman of the Commodity Futures Trading Commission, said on Tuesday.

West Texas Intermediate futures turned negative for the first time ever on Monday, but market participants had been preparing that possibility for weeks and none missed their margin payments to clearinghouses as a result, Tarbert told CNBC.

Volatility in the oil markets spiked in March as governments worldwide increased stay-at-home orders to reduce the spread of the coronavirus, crushing demand for crude while wells kept pumping.

That led clearinghouses at the time to increase initial margin requirements, which actually served as a cushion against defaults during the current spike of volatility, Tarbert said.

“Yesterday, because the negativity only occurred within the May front month contract, the volatility was actually not as extreme as the volatility we saw last month because it went across the curve,” he said.

Tarbert added that he does not expect a dramatic increase in margin requirements going forward.

The CFTC continues to watch the markets closely to make sure what is going on is reflective of real supply and demand and not something else, he added.

“It’s not a financial markets issue at this point,” Tarbert said. “Basically it can be explained by what’s going on in the real markets, which obviously is a tremendous amount of dislocation with respect to storage, supply capacity and dramatically decreased demand.”

Reporting by John McCrank in New York; Editing by Marguerita Choy

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