A Crazy Day for Oil Leaves Traders Dazed From Tokyo to Houston

(Bloomberg) -- The Sunday opening of the oil market is traditionally a sedate affair: volumes are minimal and only a few traders in Asia, where it’s already early Monday, are in front of their screens.

Last Sunday was different. Order volumes were sky high and hedge funds, refiners and oil trading houses had their top traders staffing operations, according to interviews with multiple market participants. Brokers put special teams in place to beef up skeleton weekend crews.

“It wasn’t just profit and loss,” said Richard Fullarton, the founder of London-based oil hedge fund Matilda Capital Management. “People’s careers and livelihoods changed on Sunday night.”

Those who put in the extra hours were confronted with the kind of market that few if any traders ever experienced before with positions that were previously profitable potentially deeply loss-making, and vice versa. Within 24 hours, the world’s two main exchange-traded futures had their busiest trading day ever. Even diesel transactions hit an all-time high as turmoil spread beyond the crude market.

The chaos was a direct result of a hit to Saudi Arabian oil production that was probably the single-biggest blow of its kind in the nation’s history. On Saturday morning, drones attacked facilities at the country’s Abqaiq plant -- described as a key piece of infrastructure in Saudi Aramco’s IPO prospectus -- halting about 5% of global crude supply in a stroke.

“Sunday and Monday were probably the most intense day and a half in the oil market I have had since 2008,” said Doug King, co-founder of the commodity hedge fund Merchant Capital.

Senior staff from banks, trading houses and brokerages rushed to their offices across Manhattan and Houston on Sunday evening, logging in hours before the market’s open at 6 p.m. New York time -- as anticipation built over just how much oil would rise by. Even in Europe, where it was closer to midnight, traders got to work -- either at their offices or at home.

The level at which the market opened would reveal just how profitable -- or loss-making -- each traders’ positions were going to be, making Sunday night’s opening a critical moment for the entire market, from risk managers to exchanges evaluating margin calls.

For some, it was about trying to trade out of bearish speculative positions that risked hemorrhaging cash. Still, as the day progressed, and a lack of sleep took its toll, financial traders in New York and Houston expressed caution as Monday progressed, given that it was one of the most volatile moves in their careers. Some said that they were proceeding cautiously due to fatigue while others said that this was new territory altogether.

“Folks in Houston are probably tired right now,” said John Saucer, vice president of research and analysis at Mobius Risk Group in Houston. “In times like this, you just have to adjust your size and your positions will become just a fraction of what you typically would put on.”

The impact of the attacks meant near-worthless options became a gold mine. Derivatives that previously pointed to a bearish bias turned bullish. An indicator of supply and demand suddenly pointed to immediate tightness.

“It was a very nice summer day in Switzerland, but many people didn’t enjoy it,’’ said Olivier Jakob, managing director at consultants Petromatrix GmbH in Zug, a hub for commodities companies. “People were trying to figure out what was going on and what would be the impact on the open. It was a working day for many people.’’

--With assistance from Alaric Nightingale, Jack Wittels, Grant Smith, Serene Cheong and John Deane.

To contact the reporters on this story: Javier Blas in London at jblas3@bloomberg.net;Catherine Ngai in New York at cngai16@bloomberg.net

To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net, Brian Wingfield

©2019 Bloomberg L.P.