A London-based oil broker was under investigation on Thursday after a rogue trader caused the firm to lose US$10 million following a series of unauthorized trades believed to have triggered a spike in global crude prices.
The trader left the firm on Tuesday following the discovery of contracts that helped push trading volumes to almost double the current daily output of Saudi Arabia, the world’s largest oil exporter.
PVM Oil Futures confirmed that it was forced to pay US$10 million to honor unauthorized trades by the broker, who for legal reasons cannot be named.
It said: “PVM can confirm that it was the victim of unauthorized trading on Tuesday, 30 June.
“As a result of a series of unauthorized 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 US$10 million.”
Oil is the most heavily traded commodity, with main centers in London and New York. The price is set by futures contracts placed in London’s InterContinental Exchange (ICE), which dominates European trading, and New York’s NYMEX.
Analysts say as much as 60 percent of crude oil prices are based on speculative trading by firms such as PVM, which place orders on behalf of large trader banks and hedge funds.
Tuesday’s trades are widely believed to have caused global crude prices to jump to their highest level in more than eight months, in a move traders and analysts had previously struggled to explain.
PVM said it was conducting a full investigation and had informed the main London regulator, the Financial Services Authority, and the ICE, where the majority of North Sea Brent crude oil futures are traded.
The company did not name the person responsible for the trades, adding in its statement: “PVM expects the highest standards of conduct from its people, and takes any contraventions of those standards extremely seriously.”
The FSA said any initial investigation would probably be carried out by ICE.
Trade sources told Reuters that PVM started contacting clients on Wednesday saying it was investigating unauthorized trades by a rogue broker.