Last week, oil futures prices fell below zero for the first time in history, as a market glut fueled by the economic fallout from the pandemic drove a selloff by traders desperate to avoid taking delivery of physical supplies of the commodity.
May futures contracts of U.S. crude, which trade as West Texas Intermediate (WTI), fell $55.9, or 306 percent, to settle at a discount of $37.63 a barrel after touching an all-time low of minus $40.32 a barrel.
Oil collapse left investors with staggering losses
Thousands of Chinese investors were shocked on Wednesday after receiving a letter from the Bank of China telling them they’ve lost their investment. Some even owe the bank tens of thousands of dollars.
Mr Liu, ‘Crude Oil Bao’ Investor told the Epoch Times, “I’ve got $90,000 yuan worth of contracts. Now I need to pay them over $150,000 yuan. I’ve lost all my investment and even need to pay additional deposit.”
These individual investors have put their money in a product linked to foreign Oil futures, called Crude Oil Bao (or Crude Oil Treasure), sold by the state-owned Bank of China.
After Monday’s oil price crash, the Bank of China hogged at new transactions for this product. On Wednesday, it told investors that they need to pay what they owed the bank, based on this price, a history low of negative $37 a barrel.
Investors were stunned. According to a report by RFA, the investors’ loss could be over $4 billion. One receipt circulating online shows the person bought 20,000 contracts and suffered a loss of $1.3 million. His original investment of $550,000 is gone, and he even owes the bank $750,000.
Angry investors are questioning the bank’s risk management disclosure practices. Some say that the agreements say that investors will be warned when their loss is over 50%. But they hadn’t received any warning.
They also said that they didn’t receive any alert that the oil price could turn negative. Investors also pointed out that the product itself has defects. They said the bank waits before the last day of trading to update their contract, instead of doing it several days ahead, like other providers of similar products. According to local media reports, since Wednesday in several cities, some investors were going to banks of China branches and regulatory agencies to demand answers. They were also getting together to file class action lawsuits against the bank.
Chinese regulators have ordered the bank to self investigate. A post circulating online appears to show an internal memo in which local Bank of China branches are warned to prepare for gatherings of protests, and says security staff need to be armed. The post could not be independently verified.
From the Epoch Times with additional reporting by Eagle Vision Times