The Financial Times of Friday, July 3 2009 has a story about how a”rogue oil broker” triggered a price spike in Oil Prices. A single trader for PVM Oil Associates in London bought 8m barrels of oil in “unauthorized trading” causing the price at $71 to spike to $73.50. That position later had to be closed out at a reported loss of $10M to the company as prices after the spike fell to 66.50 a barrel in the next few days. What is particularly distressing about this episode are the following:
1)This is the second recent episode of “rogue trading” with a May incident involving a Morgan Stanley trader;
2)PVM Oil Tradings CEO, David Hufton, has spoken out against speculators in the oil market;
3)The oil price uptick helped move up oil company stock prices throughout the World by 1-3%;
4)The regulators in Britain [FSA] and the US [CFTC] which are supposed to be communicating strange/anomalous trades, failed to do so in this case, a still unexplained anomaly;
5)This incident and the previous one provide proof that the markets can still be played where, for the comparatively cheap price of $10M, markets’ oil stock prices can be moved up by 10’s of billions of dollars. Of course, no wrong doing is alleged or proved here.
The situation is so alarming that the NYTimes reports in article today that a)the volatility in the oil markets has been so pronounced that Laura Wright, the chief financial officer at Southwest Airlines, ..[noted that] “Over the past 15 to 18 months, this [volatility] has been unprecedented. I don’t think it can be easily rationalized.” The article goes on to underline that Governments, businesses, and consumers are all concerned and trying to hedge against oil price volatility. But despite these concerns and corrective measures, efforts to provide oversight over oil’s financial markets have not progressed at all.
Once again the New Normal for Financial Markets looks suspiciously like the Old Normal of self-described Perfectly Competitive Financial Markets that don’t need any tinkering or fixing, thank you very much. This is also known in a fifth of GreedSpeak as “Take what they give you, steal the rest”.