In Today’s Erratic Market, Oil Traders Play High-Stakes Guessing Game : Commodities: Dealers chart the war-induced ups and downs of crude prices around the world. Deals for millions of barrels of oil can be cut in seconds.
As soon as the bombs began falling on Iraq, oil analyst Thomas P. Blakeslee was on the phone, scrambling to get a handle on the after-hours cash market for crude oil.
He and others in the oil trading business eventually were swept into a nonstop cycle of charting the war-induced ups and downs of crude prices in Tokyo, London and New York.
Oil had plunged on news that the aerial attack on Iraq was going well. Then it surged at some points when the horrors of the Persian Gulf War were shown on television.
Blakeslee listened to the news. He sorted through a constant swirl of Mideast rumors. He stared at the latest oil prices ticking off on an array of computer screens at his desk in the financial consulting firm of Pegasus Econometric Group Inc. in Hoboken.
He was never far from several direct phone lines to the floor of the New York Mercantile Exchange, the world’s largest energy market, just across the Hudson River in downtown Manhattan. He was often on more than one line, talking fast.
Blakeslee kept his finger on the pulse of oil with an intensity that might seem like an obsession, particularly while the Mercantile Exchange was in business. Deals for thousands, even millions, of barrels of oil can be cut in seconds, and there is no time for a trader to pause.
“You have to keep watching it all the time, from 9:45 to 3:10,” Blakeslee said in an interview.
Ironically, the 23-year-old analyst, who realized at age 17 he was hooked by the allure of crude oil trading, has never seen any of the stuff. Outside of a knickknack souvenir jug full of North Sea Brent crude, that is.
“Have I ever seen crude oil?” Blakeslee said. “No. Not in terms of any real quantity.”
In fact, most of the people who buy and sell crude oil futures, which the industry calls “paper barrels” of oil, have never seen any oil. Most hope they never do, because it would complicate their pattern of doing all their deals on paper.
“That’s something you have to be very, very careful about,” Blakeslee said. “It would be very costly for someone to actually take possession. You have to be very careful not to take delivery of a product if you’re a speculator.”
He’s quick to say the big players in the futures market are in the oil business, hedging their business against any unexpected volatility rather than speculating. Oil producers agree to sell oil for a specified price, and if crude oil suddenly crashes, the futures deal protects them from the loss they suffer while selling their “wet barrels” of crude.
Refiners and marketers might agree to buy oil for a specified price, and if crude rises, they make money on their futures trades that offset the higher price they must pay for actual oil.
About a week before the war with Iraq got under way, Blakeslee advised a client who runs a refinery to buy into several futures contracts. He said the client subsequently was protected when the price of oil plunged a record $10.56 per barrel the day after the bombing started.
“It kept them from taking a loss, I’d say saving them $5.4 million,” Blakeslee said. “It’s not that they made it, but they didn’t lose it.”
Blakeslee’s first taste of oil trading came six years ago. He had just gotten out of high school and landed a job on the floor of the exchange, as a clerk for a small trading firm that since has been bought out.
“I realized this was the purest form of trading, and it made my blood boil,” Blakeslee said. “People with a lot of product have the power to move the market. The reason I stuck to crude oil, it’s the backbone of our industrial economy.”
Blakeslee went on to earn double degrees in economics and political science from Columbia University. As oil rose and fell the last five or six months on news and rumors from the Persian Gulf crisis, he found his background in political science more helpful than his background in economics.
