Decline In Oil Contracts Destroy Chinese Investors

The decline in recent oil barrel contracts is not an accident. It is a politically motivated action that is highly suspicious in light of the food shortages targeting pork- which China needs for survival -and that the virus has shut down the Chinese economy, is compelling manufacturing to move to nations such as India or those scattered throughout Southeast Asia, and how China is being isolated for her actions before the entire world.

But what about oil? Zero Hedge reports that in light of the future’s contract collapse, not only has Russia been affected, but Chinese investors have been forced into margin calls where the rolling nature of the contracts has made people go from investing money earning income to owing money to the banks.

It’s not just investors in the largest US oil ETF, the USO, the suffered billions in losses last week after WTI plunged, its May contract settling at minus $37.63 on Monday: the shockwave from the crash in near-dated crude prices, which has forced the USO to halt for trading on several occasions as it scrambles to rebalance daily and purchase as many longer-dated futures as it possibly can to avoid another deliverable disaster and stay in business, has also wiped out countless Chinese investors, many of whom ended up owing money to the bank.

The latest Bank of China estimates for the carnage to retail investors from the collapse in a product linked to U.S. crude oil futures has surged 11-fold to more than 7 billion yuan ($1 billion) as it consolidated reports from its nationwide network, Bloomberg reported. The fourth largest Chinese bank’s estimate of losses to customers across China increased from just 600 million yuan in the middle of last week as more information was gathered from its over 10,000 outlets, said the sources. And since the number “isn’t final and subject to further changes as the lender examines the data from its branches”, the full loss will likely be even greater.

More than 60,000 clients have invested in Bank of China’s product, Caixin reported, adding that investors have lost their margins of 4.2 billion and owed the bank a further 5.8 billion yuan. BoC said Wednesday that investors still need to settle their positions at the Monday WTI settlement price, and the bank has completed settlement of all May contracts. Over the next few days, more investors were likely settling their losses with some strategically disappearing and hoping they can leave the bank to foot the bill. As Caixin adds, one investor took a 9.2 million yuan ($1.3 million) loss on a 3.9 million yuan investment in the product, according to a document circulating online. The oil price slump left the investor owing 5.3 million yuan to the bank. (source)

This is essentially what happened in the famous scene from Trading Places, where Eddie Murphy and Dan Aykroyd short orange juice contracts and then buy hundreds back once it is announced that the crop did not collapse, making them instant millionaires.

Metaphorically speaking, the Chinese traders are basically the Duke Brothers here, and Eddie Murphy and Dan Aykroyd are the Americans. They just destroyed the Chinese financial markets with one blow to the oil futures market. Plus they also took down Russia’s economy too.

Truly, the virus is the “gift that keeps on giving”, because so many changes in such a short time have come from it.

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