Oil futures drunk-trading incident

The oil futures drunk-trading incident was an incident in which Stephen Perkins, an employee of London-based PVM Oil Futures, traded 7,000,000 barrels (1,100,000 m³) of oil, worth approximately US$520 million (£340 million), in a two-and-half-hour period in the early morning of 30 June 2009 while drunk. These unauthorized trades caused the price of Brent Crude oil to rise by over $1.50 a barrel within a short period of time, a trend generally associated with major geopolitical events, before dropping rapidly. As a result of the trading, PVM Oil Futures suffered losses of almost $10 million and Perkins was dismissed, later being banned from trading by Financial Services Authority (FSA).

Background

Stephen Perkins, an employee PVM Oil Futures since 1998, was a Brent Crude broker in the London-based company's international commodities futures division.^[1] As part of his duties, he traded in futures for clients; he was not allowed to trade using PVM's money.

Trading

On 29 June 2009, after spending a weekend drinking heavily, Perkins returned to London from a company-sponsored golf weekend and continued drinking at around midday. Around this time, he made some trades, which he said were for a client. According to Perkins, later that day he suffered an alcohol-induced blackout. Beginning at 1:22 a.m. (UTC+1) on 30 June 2009, while still blacked-out, Perkins traded 7,000,000 barrels (1,100,000 m³), worth $500 million (£340 million); at times this represented 69% of the volume of oil then being traded^[1][2] and ten times the average trade volume. He made his last trade at 3:41 a.m., approximately two and a half hours later.^[3]

Perkins sent a text message to his boss stating that he was feeling ill at approximately 6:30 a.m. He was later contacted at 7:45 a.m. by an administrative clerk at PVM, who inquired about the early-morning trades. Perkins replied that he had spent the night assisting a client with trading. However, by 10:00 a.m. his claim had been disproved and PVM attempted to rid themselves of the futures.^[3]

Aftermath

Perkins's trading left PVM Oil Futures holding "substantial volumes" of futures, which cost the company $9,763,252 to honour; at the time, PVM's annual income was only $12 million. That year PVM saw a loss of $7.6 million.^[3]

The cost of oil worldwide rose from $71.40 per barrel to $73.05 per barrel, the highest in eight months,^[3] before the trend reversed sharply; the total increase due to Perkins's trading was more than $1.50 per barrel, which is generally only caused by major events with geopolitical significance.^[1][2] For comparison, a $2-per-barrel increase would have cost $175 million worldwide.^[4]

After an investigation by the FSA, which deemed him "not fit and proper", Perkins was barred from working as a trader in June 2010 for a minimum of five years and fined a total of £72,000, paid in 36 instalments. This number was reduced from £150,000 after Perkins expressed concern that it would cause him undue financial hardship.^[1] When delivering the report, a regulator for the FSA said that "Mr. Perkins poses an extreme risk to the market when drunk".^[3][3]

As a result of Perkins' trading, he was suspended in July 2009. That same month, he joined an alcoholics' rehabilitation programme.^[1] In July 2010, two days after the FSA announced the sanctions, Perkins was hired by Starsupply Renewables SA, a Swiss-based biofuels brokerage company, initially to create training manuals for new recruits; Starsupply promised not to allow Perkins to trade for the remainder of his probation. A spokesperson for Starsupply stated that they considered him "a good man who did a stupid thing".^[5]

References

Footnotes

1. ^ ^{a b c d e} Treanor 2010-06-29, Drunk trader.
2. ^ ^{a b} Mason 2010-07-2, Swiss broker.
3. ^ ^{a b c d e f} Mason 2010-06-30, How a broker.
4. ^ Inman 2009-07-02, Probe launched.
5. ^ Klopsis 2010-07-03, Starsupply Renewables.

Bibliography

• Inman, Philip (2 July 2009). "Probe launched after rogue trader costs City oil broker $10m". The Guardian. UK. http://www.guardian.co.uk/business/2009/jul/02/rogue-trader-oil-london. Retrieved 26 August 2011. 
• Klopsis, Nick (3 July 2010). "Starsupply Renewables SA hires Steven Perkins, oil trader who bought $520M worth of oil while drunk". NY Daily News. http://articles.nydailynews.com/2010-07-03/news/27068983_1_oil-prices-shot-trading-global-oil-market. Retrieved 26 August 2011. 
• Mason, Rowena (30 June 2010). "How a broker spent $520m in a drunken stupor and moved the global oil price". The Telegraph. http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/7862246/How-a-broker-spent-520m-in-a-drunken-stupor-and-moved-the-global-oil-price.html. Retrieved 26 August 2011. 
• Mason, Rowena (2 July 2010). "Swiss broker hires Steve Perkins - who did a 'stupid thing' in trading $520m when drunk". The Telegraph. http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/7868872/Swiss-broker-hires-Steve-Perkins-who-did-a-stupid-thing-in-trading-520m-when-drunk.html. Retrieved 26 August 2011. 
• Treanor, Jill (29 June 2010). "Drunk trader banned for buying 7m barrels of oil after binge". The Guardian. UK. http://www.guardian.co.uk/business/2010/jun/29/drunk-oil-trader-banned-fsa. Retrieved 26 August 2011.