Stats › Intraday and market microstructure › Oil settlement
The oil settlement window
Oil doesn't have a closing price in the way a share does. It has a settlement price, and that price is computed from a window: two minutes for WTI ending at 14:30 New York, two minutes for Brent ending at 19:30 London. Everything margined, marked, indexed or cash settled against oil hangs off those two minutes.
That is a deliberate design. A window is much harder to move than a single last trade. But it also concentrates a very large amount of deadline-driven order flow into a very short slot, and it creates a whole order type, trade at settlement, whose entire purpose is to guarantee you the window's outcome without having to trade in the window.
This library already mentions the minus $37.63 settlement of 20 April 2020 in passing on the commodity returns page. This page goes at the mechanics, because the thing almost nobody says out loud about that print is that it was not a volume weighted average of trades in the May contract at all. It was derived from calendar spreads. The CFTC says so in its own report, and the sentence is quoted below.
NYMEX WTI settles on the volume weighted average price of trades between 14:28:00 and 14:30:00 New York. ICE Brent settles on the weighted average of trades in a two minute period from 19:28:00 London. On 20 Apr 2020 the expiring May WTI contract opened at $17.73, fell from $0 to minus $39.55 between 14:08 and 14:28, touched minus $40.32, and settled at minus $37.63, a fall of $58.05 in one session. That settlement came from the VWAP of May-June calendar spread trades in the window, because June had been the designated active month since 17 Apr. Trade at settlement volume that day ran at more than 20% of total volume, over twice normal, and outright TAS traded at its maximum price limit more than 70 times as often as in all of 2019.
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