CRISIS IN THE PERSIAN GULF : White-Knuckle Days in the Life of Oil Futures Traders

Trading a futures market is a matter of carefully interpreting ambiguous signs, and the signs seemed plenty obscure Thursday as they flashed on the screens of Dean Witter Reynolds’ New York energy futures desk.

Iran warns that it won’t tolerate Kuwait’s annexation, read one headline. Turkey has moved F-16 fighter planes to its frontier, said another.

“Intermittent movement of Iraqis toward Saudi border,” broker Randall Rothenberg recited from a screen as he tried to simultaneously hold three telephone receivers. “What’s that mean?”

“They’re doing the tango?” proposed broker Stephanie Rzasa.

Such headlines have taken on unusual significance in the past week, since Iraq’s invasion of Kuwait sent oil prices into orbit and focused the world’s attention on the gyrating oil futures market of New York. Indeed, the market centered at the New York Mercantile Exchange is the world hub of oil futures trading. It has been where America has looked to discover that crude oil prices had leaped as much as one-third.

Volume on the exchange has set records twice in the past five days and, though Thursday was quieter, some traders believe that the market may churn and heave again if the unpredictable Iraqi president, Saddam Hussein, decides to resist growing military pressure around him. Historically, oil futures have been twice as volatile as financial futures such as bonds and stock-index futures and, in the past week, they’ve demonstrated that volatility again.

All of this makes the game of betting on prices more interesting than usual for traders and brokers, such as Rothenberg, who work at New York’s more than two-dozen energy futures desks. “As prices get up into the stratosphere, you’ve really got little to go on,” said Rothenberg, who is 34.

The seven-broker Dean Witter desk is in Manhattan’s twin-towered World Trade Center--only two buildings away from the chaotic Nymex trading pits where floor brokers and traders swap contracts, which are pledges to buy and sell specified amounts of oil at a designated date. Brokers such as Rothenberg take orders from such customers as oil companies, banks, petroleum wholesalers, oil producers and even airlines, and call them to floor brokers for execution of the trades.

The trading desk is dense with phones, computer hardware and screens flashing fast-changing prices and news dispatches. On the walls are large maps showing the location of refineries and oil and gas lines in the United States and the Persian Gulf.

While the brokers aren’t betting the firm’s own money by buying contracts, customers are relying on them for their judgment on the market’s direction.

At the regular staff meeting that preceded the market’s 9:45 a.m. opening, the Dean Witter group decided that the recent decline in prices might soon be reversed. Through the morning, the brokers got that word out to customers.

With tanks, aircraft and a flotilla of ships moving toward him, Hussein “is going to be like a caged tiger,” Rothenberg told one. “He’s not going to turn on his heel and go quietly home. . . . He may be getting his claws ready.”

Of course, any military move by the strongman that threatened Saudi oil fields would reignite price increases.

The brokers judge the market’s course using information from any number of sources. They try to gauge the sentiment of the market by talking to their customers and floor brokers, by evaluating the meaning of the orders they have received and sometimes by simply listening to the level of background noise when they call the trading pit.

They pay close heed to any news on oil supply, such as Thursday’s bulletin that UltraMar Inc. was closing its catalytic “cracker” refining hardware in Wilmington, Calif., unexpectedly for repair. The computer screens arrayed on the desks also provide charts and graphs illustrating so-called technical factors--the internal market dynamics that are supposed to also influence which way prices will go.

And, of course, some traders rely on hunches.

Because of the pace of the business, brokers must sometimes depend on the single-line news headlines that appear on their Telerate information service screens beneath densely plotted charts of petroleum prices. But a one-line headline can’t often convey enough about a complicated situation, and sometimes the market misreads the summaries and moves forcefully in the wrong direction.

Thursday morning, one such headline reported: “Soviets will not join U.S.-led forces,” which might suggest that the Soviets were distancing themselves from the embargo effort--a circumstance that might raise prices. But the remainder of the report, which didn’t appear on the screen, said the Soviets were apparently willing to take part in a U.N.-led effort.

Crude oil prices added more than 30 cents a barrel for a while Thursday morning on the strength of a report attributed to the British government that Iraq had closed its borders. But some people wondered later if this marked a change.

“The borders were already closed,” said Lisa Morgan McNaney, who supervises floor brokers for United Fuels, a New York futures firm.

Sometimes, too, traders try to purposely feed in misleading information to get things moving their way. On Thursday, a caller asked Dean Witter broker Sandra Weinberger: “Have you heard about anything being shot down?”

There may have been some grain of truth to the suggestion, or maybe the caller had bought contracts at a high price and was desperate to inject some anxiety that would move the market. “You always assume there’s something behind it,” said Weinberger.

The broker’s job is not only to make money for the customers but also to provide services that keep them happy in other ways. Sometimes the brokers go to some length.

One of Dean Witter’s customers is a French concern that regularly calls from a speaker phone and remains on the line for many hours. The purpose is to be sure that the customer has an open phone with a good connection if it decides to place orders.

The brokers can’t put the phone down, so they take turns cradling the silent receiver. Once, Rothenberg sang the Marseillaise, the French national anthem, in an effort to get the customer’s attention. It worked.

Many customers are calling from overseas to get in on the action in New York, and Rothenberg talks regularly to clients in Chile, Spain, England, France and Japan. He speaks French and German, which he said helps.

The job doesn’t demand the physical stamina required by working in the pits, but most brokers on such desks are between 25 and 40 years old. After 40, they go into administration, move on to jobs such as consulting or change careers completely, brokers say.

Most brokers probably earn between $50,000 and $150,000 a year, Rothenberg estimated. Only a few earn $250,000 or more a year, he said.

Across the front of Rothenberg’s phone is taped a printed fortune-cookie slip: “You will be unusually successful in business.”

The job’s worst nightmare, brokers say, is a mistake in executing a trade. If a client calls in a “sell” order on a day when dozens of others are buying, it’s easy to mistakenly reverse the order. Then the house may need to eat the loss.

A lot of money is at stake. Prices have fluctuated by more than $2 a barrel in several recent sessions. A move of only 25 cents adds or subtracts $25,000 from the value of the 100-contract orders that are regularly called in.

One of the thrills of the job is calling a turn in prices and making the customer a lot of money. “It’s an instant gratification sort of thing with this job,” said Rothenberg, who grew up in New York and abroad and said he was drawn to the business by the fast pace. “I could have been a bank credit officer, but I wanted something a little quicker.”