London traders lose first round of negative WTI antitrust case

Quantum Commodity Intelligence - A group of eight London-based commodities traders have lost their bid to end US antitrust litigation in Chicago over claims they participated in a $500 million scheme to rig oil futures markets when the price of WTI briefly fell into negative territory, reported the Bloomberg Law website late Tuesday.

However, the report said that the company the traders are affiliated with, along with several colleagues, are "off the hook".

Judge Gary Feinerman let part of the case move forward in a ruling made public early Tuesday, saying the allegations make it plausible that traders at Vega Capital London Ltd. conspired to drive oil prices negative for the first time in April 2020 and subsequently concealed their market manipulation.

"There may be explanations for the correlated trading that do not involve collusion," but those defences are for later in the case, Feinerman wrote.

As an initial matter, "the high degree of correlation" among the traders makes the "allegation of parallel conduct eminently plausible," he said.

The lawsuit, filed in August 2020, targeted Vega, its owner, and a dozen traders there who reportedly made $500 million in a single day when WTI crude oil futures dropped by $56/b on 20 April 2020 to close at -$37/b on the New York Mercantile Exchange.

The suit accuses Vega and its traders of dumping May 2020 oil futures contracts at a loss in a coordinated scheme to drive down the price of 'trade at settlement' (TAS) contracts pegged to the closing price that day, of which they'd bought "a large volume" beforehand.

Class action

The proposed class action, led by coin collector Mish International Monetary Inc., alleges violations of antitrust laws and the Commodities Exchange Act.

Vega and the traders, meanwhile, insist they did no more than observe the market signals forecasting a "once-in-a-century storm" caused by the Covid-19 pandemic.

In the ruling, Feinerman cited incriminating communications among eight of the traders, who made statements like "you've just got to keep selling," "I wanna see negative" prices, "we fucking blitzed it boys," and "please don't tell anyone what happened today lads."

He also noted that "a significant portion of the record price decline" that day took place when the traders "increased the quantity, rate, and manipulative quality of their selling," including the sharpest price drops, which "occurred when their allegedly manipulative trading was at its peak."

Among the eight traders implicated by the suspicious chat logs, trading activity that day allegedly showed a 91.9% to 99.7% correlation, Feinerman said.

He found that the parallel trades and "statements reflecting real-time trade coordination" are enough for the case to advance.

But the judge tentatively dismissed claims against four traders who weren't involved in those conversations, saying there wasn't enough to tie them to the alleged conspiracy.

He also let Vega and its owner out of the case, saying the suit "does not allege parallel conduct as to Vega or its owner, Individual A," or "any conduct" at all by them on the day in question.

The structure of Vega's contracts with its traders doesn't support an inference of collusion, Feinerman found.

IPE floor

In May 2021, the traders won the right to anonymity, although their names and profiles were widely reported in the UK and international press in the weeks following the trading coup.

The senior traders within the group were reported as former IPE traders who remained active in oil trading after parent-company ICE closed the London IPE floor down in 2005.
 
The negative WTI oil prices came at the height of global lockdowns after the initial wave of the Covid-19 pandemic, slashing oil demand and rapidly filling up storage depots worldwide, including Cushing, which is the delivery point for NYMEX WTI.
 
At the time of the negative WTI price, several regional US crude grades had already traded in negative territory, with producers essentially forced to pay refiners to take oil as a temporary measure rather than completely shut down production fields and risk permanent closure or huge restart costs.