Business | Oil & Gas
Mystery trade from home rocks oil market
Perkins' early morning deals for 9m barrels when liquidity was low inflated crude prices and triggered a crash.
- By Javier Blas and Miles Johnson, Financial Times
- Published: 23:04 July 4, 2009
London: The story of what triggered almost $10 milion (Dh36.7 million) of losses on the Brent oil market on Tuesday is still being pieced together, but one thing is clear: Steven Noel Perkins, the broker accused by bosses at PVM Oil Associates of "unauthorised trading", made his trade at a very unusual time.
Trading from his UK home at about 2am on Tuesday, it was the most illiquid time of day in the Brent futures market - a gap left between New York and Singapore hours, in which only a handful of Tokyo-based traders are active.
Traders say that at that time liquidity is very thin and much of the volume is automatically generated by computers, following prefixed trading orders. One trader said that Perkins was, in effect, trading against the machines.
With a few keystrokes, on a home computer equipped with remote access to the InterContinental Exchange Europe, the marketplace for Brent oil, he bought oil futures equal to about 9 million barrels, propelling prices to $73.50 a barrel, the highest of the year.
With computer trading chasing the rally, contracts for more than 16 million barrels changed hands in one hour, far more than the traditional 0.5 million for that time of the day.
Oil prices on Friday fell to $65.5 per barrel, the lowest level in a month and down 11.5 per cent from Tuesday's peak. Some traders said that prices are set to test the $60 level before the end of the month.
PVM's office in Singapore - which would have been expected to keep an eye on company trades at that time in the Asian day - did not notice the irregular activity, according to people familiar with the investigation, as it focuses on the over-the-counter Dubai market, the oil benchmark in Asia, rather than the futures market for Brent, the European benchmark, where the unauthorised trading took place.
The incident appears to have left PVM employees as puzzled as everyone else as to what exactly went on.
Workers at the company's London office in upmarket Jermyn Street looked around nervously as they came into work on Friday morning, some of them clutching newspapers carrying the story on the front page.
"To be honest, nobody seems to know exactly what happened. It was a moment of madness, the guy just went and ordered 9,000 lots [equal to 9 million barrels]," one colleague said outside the office.
"When you have been in the business for more than 10 years, to do something like that is just really shocking," he added.
The employee declined to be identified as he was not permitted by management to speak to the press.
He said: "It was the company that closed the position. There is an internal investigation, so maybe we will find out then [what happened that night]."
Although PVM is little known outside the crude oil market, it plays a critical role as the world's largest over-the-counter oil broker, matching orders from customers ranging from oil companies to hedge funds.
PVM declined to comment on the motivations of the broker and Perkins could not be reached for comment.
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