A small London trading house reportedly made $500 million on oil's historic plunge below zero

• Bloomberg reported on Tuesday that a trading house called Vega Capital London made $500 million during oil's historic plunge below zero.
• Oil turned negative in April when the commodity's May futures contract expired, meaning that anyone holding the contract would be forced to take delivery of the physical oil.
• Vega, a small trading house in London, made huge profits by selling oil contracts just before the contract settled, sources told Bloomberg.
• The trading house is now the focus of investigations by regulators on both sides of the Atlantic, Bloomberg reported.

Oil prices turned negative in April, leaving traders on both sides of the Atlantic scratching their heads. But for Vega Capital London, the crash led to a $500 million jackpot, Bloomberg reported on Tuesday, citing people familiar with the matter.

Oil turned negative when the commodity's May futures contract expired, meaning that anyone holding the contract would be forced to take delivery of the physical oil. With limited storage because of plunging demand due to coronavirus lockdowns, traders rushed to sell their contracts, with some paying to have others take it off their hands. That pushed prices below zero.

Bloomberg's sources said several Vega traders sold the May contract in unison just before it settled at 2:30 p.m. in New York, netting massive gains and contributing to bearish pressure on the price.

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It is a strategy frequently deployed by Vega traders, one source told Bloomberg.

The UK's Financial Conduct Authority and the US's Commodity Futures Trading Commission and CME Group — which owns the New York Mercantile Exchange, where trading took place — are investigating whether Vega violated any rules or contributed to oil's historic plunge, people familiar with the matter told Bloomberg.

The FCA declined to comment to Business Insider, while CME Group and the CFTC were not available for comment outside of US business hours. The CFTC told Bloomberg that it would release a report on the oil-market crash later this year.

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Bloomberg reported that Vega's selling coincided with a mass buyer departure, prompting the May contract to fall from roughly $10 at noon to zero at about 2 p.m. It settled at negative $37 per barrel.

Oil prices have staged a dramatic recovery since then as economies reopened and OPEC cut production.

Both major oil benchmarks traded above $40 per barrel on Tuesday.

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