A suspected 'rogue trader' who carried out unauthorised trading was the catalyst for a recent, and unexpected jump in global crude oil future prices, according to reports.
A London-based oil broker suffered losses mounting to £6 million, after one of its traders placing a massive bet in the Brent oil market, in the early hours of Tuesday.
A spike in business highlighted the irregularity, as during these hours trading is usually particularly quiet. The unusual activity showed that more than 16 million barrels of Brent crude were traded in just over an hour, in a time period which could normally only expect to see around 0.5 million barrels being traded.
The £6 million loss accrued from the unauthorised position is surprisingly low to many, having been earlier estimated as being closer to nearly double the figure.
PVM Oil Futures, for whom the trader worked, was quick to issue a statement regarding the matter after rumours became rife about irregular trading on both the London and Asian markets. In addition the company immediately informed its clearer, the Financial Services Authority (FSA), and the IntercontinentalExchange.
PVM, the biggest over-the-counter oil brokerage in the world, said: “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.”
David Hufton, head of PVM Oil Associates, described the electronic exchanges on which Brent and West Texas Intermediate (WTI) – the world’s oil benchmark – trade, as like an “electronic casino”.
Initially traders attributed Tuesday’s spike in prices to institutional funding adjusting its positions on the last day of the financial quarter, to short-term trading on global news, and everything in between.
The climb sent prices on the Brent futures market to a current year-high on both the ICE Brent market – where the trading took place, pushing prices up to $73.50 a barrel – and on the New York Mercantile Exchange (NYMEX) WTI market, where prices rose to $73.38 a barrel.
Meanwhile traders remain baffled by how a single employee, working in a firm that trades on behalf of clients – without taking its own positions – was able to make such substantial trades.
PVM has said that it is conducting a full investigation into the trades. The employee involved has been named as Steve Perkins – who has since been suspended.