Oil futures drunk-trading incident

The oil futures drunk-trading incident was an incident in which Stephen Perkins,^[1] 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 unauthorised 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 of 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 enquired 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 $73.50^[4] 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.^[5]

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]

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".^[6]

References