Watching the boards: PVM has been hit by losses of amost $10 million on the back of rogue crude trading
Rogue crude trader costs PVM $10m
London-based oil broker PVM Oil Futures is investigating unauthorised trades that left it with losses of almost $10 million, the company said today.
"PVM Oil Futures can confirm that it was the victim of unauthorised trading on Tuesday 30 June," PVM said in a statement.
"As a result of a series of unauthorised 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 $10 million."
The trade on Tuesday caused global crude prices to spike, a Reuters report said.
It was not immediately clear how long PVM's internal checks would last and what likely course of action would be taken. PVM declined to comment for legal reasons on who had carried out the trades and whether the person had since left the company.
Trade sources said PVM had told clients it was investigating unauthorised trades by a "rogue" broker, sending rumours buzzing round oil markets in London and Asia over the past two days.
"I heard it from a PVM broker this morning. They called one of their own 'rogue' and said the broker lost money," a Singapore-based trading source, who asked not to be named, told Reuters.
PVM has informed the UK Financial Services Authority (FSA) and the InterContinental Exchange (ICE) where the majority of Brent crude futures trade.
When contacted earlier today, the FSA said any initial investigation would be carried out by the ICE.
PVM said it has met all of its margin calls and is conducting business as normal.
Trade sources said the unauthorised positions were almost certainly accumulated during Asian trading on Tuesday.
Trading activity in Brent crude oil surged suddenly just before 0200 GMT on Tuesday, causing prices of both Brent and Nymex crude to spike by almost $2 a barrel to their highest level this year, surprising traders accustomed to very small price moves during the relatively quiet Asian hours.
More than 16 million barrels of Brent crude oil traded in the space of just over an hour, Reuters exchange data showed, unprecedented for a market that typically trades less than 1 million barrels before Europe opens.
Barrels trade in lots of 1000 barrels a time.
While the action occurred in the paper market, with no barrels of crude physically changing hands, the volume of crude traded during Asian trading was almost double the current daily output of Saudi Arabia, the world's largest oil producer.
Brent prices jumped from around $71 a barrel at the open of ICE trading at 0000 GMT to about $73.50 a barrel, before easing to about $72 a barrel when European traders came in at around 0800 GMT, the data showed.
At the time, oil traders said the activity could have been related to end-of-quarter hedge fund positioning.
But traders noted that bidding large volumes during a time of day when liquidity is thin appeared illogical and would have unnecessarily inflated the purchase price for the buyer, suggesting either erroneous or ill-advised activity.
PVM has a long history in the Brent market and is one of the biggest brokers, with daily turnover averaging more than 100 million barrels of over-the-counter (OTC) and oil futures, according to its website.
The group employs some 160 people worldwide, including 65 OTC brokers, 16 futures brokers, and 15 consultants.