How one small group of traders ‘made more money than they could have dreamed of’ — and in a single day
By Tue, Aug 4, 2020
When crude prices plunged into negative territory for the first time ever back in April, one thing was clear: There were some serious losers — and winners — in the oil pits.
A few months later, Bloomberg News has identified a remarkable example of the latter.
About a dozen veteran traders at tiny U.K. firm called Vega Capital London Ltd. pocketed a whopping $500 million when the price of a barrel of oil dropped $40 in an hour that day and settled at negative-$37 a barrel, according to a source quoted in the story.
“ ‘Vega’s traders made more money than they could have dreamed of — and found themselves in the authorities’ spotlight.’ ”
Simply put, the traders, in a tactic they used often before, aggressively sold oil in unison before the May West Texas Intermediate contract settled at 2:30 p.m. Eastern time. For now, it’s a massive win, no doubt, but Bloomberg reported that regulators are looking into whether Vega’s trades may have broken rules around settlement periods and contributed to the plunge in price.
Caught on the wrong end of the historic move were thousands of Chinese and American retail investors who jumped into instruments pegged to the April 20 settlement price.
“The idea that the anomalies that day were a function solely of supply and demand is fanciful at best,” Joe Cisewski, special counsel to Better Markets, explained to Bloomberg. “Oil producers, brokers, and other market participants have been sent into serious financial distress. Regulators need to objectively and thoroughly investigate what happened.”
Could Vega have possibly seen this coming? A perfect storm of factors came into that play that led to the freefall, so, as Bloomberg pointed out, “Vega’s traders made more money than they could have dreamed of — and found themselves in the authorities’ spotlight.”
Meanwhile, oil futures reversed early losses to close higher on Tuesday as traders awaited data on U.S. crude inventories. West Texas Intermediate crude for September delivery CLU20, +1.26% rose 69 cents, or 1.7% to finish at $41.70 a barrel after trading as low as $40.14. October Brent crude BRNV20, -0.18% ended with a gain of 28 cents, or 0.6%, at $44.43 a barrel.
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