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Have Investors Been Misled By The Oil Price Crash?

A securities law firm announced on Friday an investigation on behalf of risk-averse investors with Wells Fargo, Morgan Stanley, UBS, and Merrill Lynch who have sustained significant losses recently from investment in the turbulent energy sector.

The notice comes the same week as WTI futures turned negative, although the last month of oil trading was particularly brutal, with the potential for losses significant. 

The law firm of Klayman & Toskes believes that investments in the energy sector, including the Alerian MLP Index (INDEXCME: AMZ) “may have been marketed and sold to customers who were risk averse, such as retirees or other conservative investors, that were seeking income and capital preservation and were not explained the potential risks.”

The Alerian MLP Index, the leading gauge of energy infrastructure Master Limited Partnerships, fell from $220 in January, to just $70.85 in mid-March. 

“Investors may seek damages for violations of sales practice rules and regulations in FINRA Arbitration if they were recommended investments in several major U.S. oil and gas sector firms, including Exxon, Chevron, Phillips 66, ConocoPhillips, EOG Resources, Kinder Morgan, Schlumberger, Valero Energy Corp, Marathon Petroleum Corp, Enterprise Products Partners, Tallgrass Energy, and Energy Transfer, among others," the law firm said.

The bulk of the market carnage came on Monday, when WTI Crude futures collapsed into negative territory, resulting in a lot of losses for individual investors.

Pierre Andurand, for example, warned traders on Tuesday of massive losses in ETFs.

“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.  

After the market crash on Monday, 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. 

By Tsvetana Paraskova for Oilprice.com

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  • Lee James on April 26 2020 said:
    I've seen a lot of denial of the risk in the energy sector over the last decade. So many professionals turned a blind eye. I'm too sympathetic toward those who have lost big, as of late.

    We've got to not only be realistic about near-term risk, but also the long-term risk of burning fossil fuels and staying dependent on these fuels. The net-benefit of us relying on fossil fuel is not what it used to be.

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