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Brokers Warn Clients Against ‘Dangerous’ Oil Futures

After the WTI Crude futures collapsed into negative territory this week, some brokerages have started to limit the ability of their smaller customers to place new trades in the June futures contracts of WTI and Brent Crude, two brokerages told Bloomberg on Thursday.

INTL FCStone Financial Inc and Marex Spectron are limiting customers, especially smaller ones, from initiating new trades in the two most active international crude oil futures contracts.  

INTL FCStone Financial Inc said in a memo to clients with accounts of less than US$5 million that they shouldn’t make new trades in WTI Crude and Brent Crude futures contracts for June delivery.  

“The reason for taking this action is for the best interest of our customers during these very unprecedented market conditions,” the memo seen by Bloomberg says.

Earlier this week, the United States Oil Fund LP (NYSEARCA: USO) - an ETF for crude – said in an SEC filing on Tuesday it was suspending the ability of the USO Authorized Purchasers to purchase new creation baskets. 

USO, one of the most popular oil-tracking ETFs for retail investors, was one of the reasons for the historic decline in May WTI futures on Monday. 

Pierre Andurand, a well-known energy trader, warned traders on Tuesday of massive losses in ETFs.

“I think the CME might have no other choice but to close out the ETFs positions. It cannot take the risk to have negative prices before the roll and be on the hook. This shock is real. Be very careful out there. We are going to hear about crazy losses in the days and weeks to come,” Andurand said on Twitter.  

Earlier this week, Paul Sankey, managing director at Mizuho Securities, who had warned of negative oil prices a month ago, said that the WTI Crude futures prices could crash to as low as a negative $100 per barrel in May.  

By Tsvetana Paraskova for Oilprice.com

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