Crude purchases cause oil markets turmoil
Electronic Telegraph, June 3, by Margaret Doyle
THE crude oil market was thrown into chaos last week when a tiny oil company bought 12.5M barrels of Brent crude over two weeks. The purchase by Arcadia Petroleum, an oil trading company owned by Japanese trading giant Mitsui, caused havoc because the price of Brent is the benchmark for all other North Sea crude oils.
Arcadia is understood to have bought around 25 cargoes of wet crude in the last fortnight in May. This compares with a daily Brent output of 600,000 barrels and was enough, traders claim, to add $1.20 a barrel to the price of Brent crude. One petroleum expert said: "There were lots of complaints, but nobody could do anything about it."
The price immediately dropped after Arcadia stopped its buying spree last Friday. From a high of 55 cents above July delivery last Wednesday, the price dropped to 65 cents below July delivery yesterday, or around $13.50 per barrel. London-based Arcadia, which employs just 25 people, was estimated by rivals to have made profits topping $20m dollars from the trade.
However, a source close to the trading firm dismissed such reports as "rubbish". He indicated that the trader's profits were less than $10m from the transaction. Arcadia is understood to have acquired 10 cargoes to cover short sales, and to be keeping 15 cargoes in storage in South Africa.
A source close to Arcadia confirmed that the company had entered swap transactions, saying: "We had to protect our exposure." He admitted that the effect of the purchase would be to raise the price paid by refiners, saying: "It doesn't take a brain surgeon to realise that if you buy quite so much Brent, the price will go up." There is no suggestion of any wrong-doing by Arcadia. It is normal trading practice for firms to exploit temporary market situations. |
