CORRECTED: London oil market probes alleged rogue trader
LONDON, July 3, 2009 (AFP NEWS) -
Oil market officials here have launched a probe into an alleged rogue trader
who helped push prices to eight-month peaks this week, costing his company
nearly 10 million dollars (7.15 million euros).
ICE Futures Europe, London's oil market, is investigating Tuesday's allegedly
unauthorised trade, after which crude futures surged above 73 dollars a barrel.
David Peniket, president and chief operating officer of ICE Futures Europe, on
Friday said his body investigated unusual trading activity as a "matter of
course."
He added: "There are a range of procedures that are followed to look at trading
patterns, price movement and levels of activity.
"We have a market supervision system and a compliance system and we are
constantly carrying out the kind of process that we have discussed.
"It will investigate and follow up, and where appropriate, action will be
taken," said Peniket.
An oil brokerage, PVM Oil Associates, said on Friday that it was investigating
suspected unauthorised trading within its company.
PVM said that it had had to unwind the series of trades, and analysts said that
this had in turn contributed to a sharp drop in prices.
"The rogue oil trade on Tuesday just goes to show how easy it is to squeeze the
market under thin trading conditions," said ETX Capital analyst Manoj Ladwa.
"Brent crude spiked above 73 dollars per barrel as a trader purchased the
equivalent to 9.0 million barrels. The subsequent fall in price was due to PVM
Oil Associates unwinding the position."
In early morning trading on Tuesday, London's Brent North Sea crude for August
delivery had spiked to 73.50 dollars -- the highest level so far this year and
an eight-month peak.
New York's main contract, light sweet crude for delivery in August, had soared
early Tuesday to 73.38 dollars -- which was also last seen in October.
In Friday morning deals, prices stood at about 66 dollars a barrel, but losses
were less severe than a day earlier when traders had sold heavily on fresh
worries about the weakness of the US economy.
A statement released by PVM Oil Associates managing director Robin Bieber said
late on Thursday: "PVM can confirm that it was the victim of unauthorised
trading on Tuesday 30th June.
"As a result of a series of unauthorised trades, substantial volumes of futures
contracts were held by PVM. When this was discovered, the positions were closed
in an orderly fashion.
"PVM suffered a loss totalling a little under 10 million dollars."
The group added: "PVM expects the highest standards of conduct from its people
and takes contraventions of those standards extremely seriously."
Traders use London's ICE Futures Europe market to buy and sell crude oil
contracts for delivery in several months' time. This mechanism allows them to
bet on whether prices will go up or down.
London's financial watchdog, the Financial Services Authority, refused to
confirm or deny whether it was investigating the incident.
Analyst John Hall, who runs his own energy consultancy in Britain, said the
episode illustrated how vulnerable the London oil market was to manipulation.
"The rogue trader actions highlight how susceptible this market is to
manipulation, irrespective of fundamental influence," Hall told AFP.
"The market is very sensitive to manipulation in the absence of fundamentals,"
he added, in reference the lack of supply and demand news
