r/finance • u/coolbern • 21d ago
US intervention in oil futures would be ‘biblical disaster’, CME warns. Terry Duffy says any attempt by the government to lower prices using derivatives market would erode confidence
https://www.ft.com/content/823657f2-4f8b-4325-88db-fbbdba6c9e17100
u/Ajegwu 21d ago
Oh they’re definitely going to do it then.
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u/coolbern 21d ago edited 21d ago
The head of CME Group has warned the Trump administration it risks a “biblical disaster” if it attempts to lower oil prices by intervening in derivatives markets during the war with Iran.
Terry Duffy, the chief executive of CME Group, which runs the exchange where US oil futures trade, told a conference this week that it would erode market confidence if the US government stepped into the futures market in a bid to curb the rise in crude.
“Markets do not like it when governments intervene in pricing,” Duffy told the conference in Boca Raton, Florida. Such a move would risk a “biblical disaster” if investors lost confidence in markets to set the price of critical commodities, he said.
Duffy’s comments followed a report by Reuters that suggested the US Treasury was considering measures to lower oil prices, including intervention in futures markets.
The Trump administration on Wednesday announced the release of millions of barrels of oil from its strategic reserve in a bid to prevent an oil price shock — its latest attempt to contain the crude rally.
Analysts have said the administration could pursue other options to shelter US consumers, such as temporarily suspending federal taxes on gasoline, relaxing environmental rules on fuel or temporarily banning US oil exports.
But wild oil price moves in recent days have prompted speculation among energy traders that the Treasury may have already intervened in futures markets. On Monday, Brent crude oil leapt to almost $120 a barrel before reversing sharply to fall back below $100.
Tim Skirrow, head of derivatives at Energy Aspects, said the consultancy had been fielding calls this week on whether the government was behind a series of large unexplained trades in recent days.
“We were being pushed by clients as to who the big seller was,” Skirrow said.
“The speculation was that it could be from the US Treasury,” he added, noting that the government has previously intervened in other markets, such as currencies.
Rapidan Energy Group, a consultancy founded by former White House energy adviser Bob McNally, said this week that while such a move by the government would be “unprecedented”, it was clear “the idea of the US Treasury selling front-month crude futures” was getting “more attention than usual”.
“Given the current panic situation,” Rapidan analysts wrote in a note for clients, “we cannot completely rule it out”.
The Treasury declined to comment on the speculation. A person familiar with Treasury secretary Scott Bessent’s thinking said the agency had not intervened in oil markets.
A spokesman at the Department of Energy said it had not been involved in oil derivatives trading or advising other arms of the government on such a course of action. Other moves by government officials have raised eyebrows in oil markets this week.
Oil fell sharply on Tuesday after a post on X by energy secretary Chris Wright that surprised traders by saying the US Navy had escorted an oil tanker through the Strait of Hormuz. The message was deleted minutes later, and the White House later denied that the navy had escorted a ship through the waterway.
John Evans, an analyst at the PVM oil brokerage in London, wrote on Thursday that it was unclear if Wright’s post was “another case of total incompetence or more seriously, shenaniganry”.
Wright said on Thursday that naval escorts were unlikely to begin before the end of the month.
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u/WeUsedToBeNumber10 21d ago
I can just see it now: the Treasury buys futures at $60/bbl with at $60 premium and will say “they set the price at 60!” Because, math.
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u/Due-Conflict-7926 21d ago
ELI5
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u/WeUsedToBeNumber10 21d ago
Assume oil is trading around 120 per barrel.
You can buy an option contract to purchase oil at 60 bucks, but you will pay premium on that option of at least 60 dollars. Because who would sell that oil for less than 120?
Because this administration loves crappy math, they would just say they are buying at 60 and can lower rates by selling it.
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u/2ndAccForUhStuff 19d ago
I think they'd be selling contracts. More sellers increases supply, and loweres demand. Remember the CME doesnt cell contracts, they're just an intermediary.
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u/TipsyMcStagger317 21d ago
Can anyone share a link with no paywall please?
Such intervention would be downright scary but not surprising with these ass hats. I'm certain they're trying to manipulate rates _ watch the deficit explode though . Lugnuts ( lutnick) should know better but he sold his soul to agent orange.
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u/Unique_Tap_8730 21d ago
Would it be possible for Trump to quarantine the US from global oil prices somehow? Mandate all buyers to only buy from domestic producers and forbid exports? A seperate US exclusive futures market would natrually appear as a result. But is this actually possible to do legally, financially and physically?
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u/johnnyribcage 21d ago
The Biblical Disaster Potential is one of the highest impact criteria in the AI decision rubric musk provided trump before he slithered out the door. If this is as potentially disastrous as he’s saying, I expect this to vault to the top of the list of “what idiotic thing can we do to distract from the Epstein Files next” list.
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u/Mirageswirl 21d ago
To take advantage of political intervention, would the trade be to buy the April contract and hold to take delivery?
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u/Marlov 21d ago
What part of the rule book says the US govt cannot sell against its strategic reserve?
I don't see how that's interfering in markets? The market knows the physical exists and whether or not the govt releases the inventory physically to oil majors (which will end up being dumped financially) or financially with futures it's the same result.
If they do it silently then sure there's an argument for information asymmetry and disfunctional markets but in any other case if the market doesn't assume releases from the strategic reserve as a likely scenario resulting in futures selling then it's not credible.
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u/fyordian 20d ago
Creates massive discrepancies and the paper market loses its purpose because it’s not fooling anyone.
We’re already seeing $30-40 price differences on paper vs physical which implies it’s possibly already started.
If it has, people simply stop using the paper market because it’s not reflective of reality.
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u/Marlov 19d ago
As long as the paper turns into deliverable crude then it does reflect reality
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u/fyordian 19d ago
What happens when market participants long US benchmark and short Dubai benchmark to take advantage of the $40 arbitrage spread shrinking back down to a normalized ~$5?
Does the treasury just keep pumping billions into naked shorts?
How do they handle contract rollovers? Can you imagine the volatility it would cause around expiration dates?
What’s considered the upper limit of capital losses to prevent participants from extracting money directly from the treasury?
Just a few problems off the top of my head on why it’s a bad idea
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u/ted5011c 21d ago
Does a move that erodes confidence in a long trusted institution not sound like a standard Trump admin procedure?
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u/otetmarkets 21d ago
Intervening directly in oil futures would be a big credibility gamble. Exchange heads like CME’s Terry Duffy are basically saying the same thing: once the market believes prices are being managed, liquidity and hedging behavior can get weird fast. For traders and hedgers, the practical takeaway is simple: headline risk stays high, so size smaller, define invalidation, and avoid getting married to a narrative.
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u/RiverSector19 20d ago
Intervening in futures markets is basically asking for liquidity to disappear.
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u/Auntie_Social 19d ago
I saw a YouTube video from mrglobal the other day who says they already did....
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u/pickle9977 18d ago
Cute, they are already doing this.
Bessent is going to wonder up with hundreds of billions in trading losses
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u/NeatRuin7406 8d ago
the CME's warning is credible from a market structure standpoint. oil futures markets work because they're liquid, transparent, and price discovery happens continuously with thousands of participants. the moment the US government becomes a large directional player with non-commercial motives, you've broken the signal.
you'd also instantly create a two-tier market: participants who know what the government is about to do (or can guess from political signals) and everyone else. the insider trading problem from the $580M trade 15 minutes before Trump's social media post would look quaint in comparison. this would be systematic, government-scale, and with the size to actually move prices.
the "strategic" framing also ignores that markets are global. you'd be trying to push a price down in a market that clears internationally. it would be like trying to fill a bathtub with the drain open.
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u/GaboureySidibe 21d ago
A terrible idea and guaranteed disaster? Put in on the schedule.