Thursday, August 21, 2008

Vitol ‘not in the business of speculation’

As a follow-up to yesterday's "'Speculator' in Oil Market Is Key Player in Real Sector" we have FT Alphaville:

Maybe it’s just a media thing, but we are interested to know how Swiss energy trader Vitol might respond to the CFTC and/or the Washington Post, now it has been named as a supposed speculator playing with the oil price.

Certain congressmen are likely to go through the roof when they return to work in Washington after Labor Day.

Back in May the Sunday Times published a frothy account of how a Vitol trader, Andrew Serotta, supposedly made £100m betting on a rise in oil futures. As one rival trader in Houston told the newspaper:

We just watched, thinking they were going to get run over…To a bystander it looked crazy.

Vitol was not amused. Managing director David Fransen dispatched the following to the newspaper:

The Editor
The Sunday Times

Dear Sir,

Your article of 25 May 2008 by Robert Watts and Iain Dey contains many factual errors with regard to Vitol SA and, in particular, Mr. Andy Serotta, a trader based in Houston Texas and employed by Vitol Capital Management Ltd, an affiliate, who is responsible for trading in the financial energy markets....CONTINUED

From the WaPo story:

...CFTC documents show Vitol was one of the most active traders of oil on NYMEX as prices reached record levels. By June 6, for instance, Vitol had acquired a huge holding in oil contracts, betting prices would rise. The contracts were equal to 57.7 million barrels of oil -- about three times the amount the United States consumes daily. That day, the price of oil spiked $11 to settle at $138.54. Oil prices eventually peaked at $147.27 a barrel on July 11 before falling back to settle at $114.98 yesterday.

The documents do not say how much Vitol put down to acquire this position, but under NYMEX rules, the down payment could have been as little as $1 billion, with the company borrowing the rest....