Wednesday, August 20, 2008

'Speculator' in Oil Market Is Key Player in Real Sector

UPDATES below.
From the Wall Street Journal:

...people familiar with the matter now say the company whose activities helped change perceptions about the escalating pace of oil speculation is Vitol Group, a large commodity-trading company with headquarters in Europe.

Though less well-known in the U.S., the company is one of the biggest players in the oil market, linking buyers and sellers of physical crude oil and refined products. It has interests in storage terminals and oil exploration around the world and sold a large refinery in Canada in 2006....

...It isn't clear why the CFTC decided that the large oil trader's activities weren't primarily commercial in nature. No longer owning the refinery could affect Vitol's ability to classify certain trades as commercial activities.

Some oil traders say Vitol has become a much more active trader of energy futures this year and has been hiring more traders. Although it does have storage and other physical commodity operations, regulators look for signs that a company, aiming to manage commercial risks in its business, is trading more heavily than necessary.

HT: Environmental Capital who wrote:

Maybe speculators aren’t such a big part of the market after all: The WSJ reports (sub reqd.) that the big player recently classified as a speculator is Vitol Group, which acts as a middleman for the industry.
May not be the right takeaway as the reporter, Ann Davis, is pretty good at this stuff and didn't stress that point.

UPDATE 1- From the Washington Post (8/21):
A Few Speculators Dominate Vast Market for Oil Trading

Regulators had long classified a private Swiss energy conglomerate called Vitol as a trader that primarily helped industrial firms that needed oil to run their businesses.

But when the Commodity Futures Trading Commission examined Vitol's books last month, it found that the firm was in fact more of a speculator, holding oil contracts as a profit-making investment rather than a means of lining up the actual delivery of fuel. Even more surprising to the commodities markets was the massive size of Vitol's portfolio -- at one point in July, the firm held 11 percent of all the oil contracts on the regulated New York Mercantile Exchange.

The discovery revealed how an individual financial player had gained enormous sway over the oil market without the knowledge of regulators. Other CFTC data showed that a significant amount of trading activity was concentrated in the hands of just a few speculators....MORE


Vitol ‘not in the business of speculation’