January 05, 2008

The Herostratus of Our Age

THE QUEST FOR FAME has its roots in antiquity. Witness the rash act of Herostratus, who on July 21, 356 BC, burned down the Temple of Artemis at Ephesus for the sole purpose of having his name remembered in history. Although the people in charge of Ephesus were nearly successful in thwarting Herostratus' scheme -- not only did they execute him, they pledged to execute anyone who so much as mentioned his name. Unfortunately some ancient historian recounted the entire affair and so we know of Herostratus' plot today.

Well, some 2,363 years and change later, we have a new Herostratus -- Mr Richard Arens of oil trading concern ABS. According to media reports, Mr Arens purposely bid $100 for an oil futures contract so as to be the first one to bid $100 per barrel for oil, viz:

"The magic figure was hit apparently on the back of a single trade, rumoured to be a local intent on fame," Sucden analysts wrote in a commentary Thursday on the record breaking deal.

Arens offered 100,000 dollars on the New York market on Wednesday for 1,000 barrels of oil, producing the much talked of 100 dollars per barrel which sparked anguish across the financial markets.

He later sold on the contract for slightly below 100 dollars, taking a 600 dollar loss.

"It was just for the form; he wanted to be the first in the world to buy oil at 100 dollars," said Antoine Heff, an analyst at NewEdge.

The new price record came as a shock to the markets although many had been saying 100 dollars was inevitable at some point given strong demand and supply constraints.

Oil slipped back slightly but hit 100 dollars again on Thursday.

On Friday, profit-taking pushed the price back again, with quotes in late Asian trade of 99.23 dollars for New York's main contract, light sweet crude for delivery in February.

Thanks, Richard Arens! THANKS A LOT! After all, now that oil has finally broken through the psychological/ technical barrier of $100 per barrel, there's no reason why it won't continue to keep rising as speculators continue to squeeze the futures contracts for every penny they can get. (OK, so that's what they do. I don't care. It's affecting my positions negatively, so I hope they rot in hell).

Meanwhile, we're all stuck paying more than $3 per gallon for gasoline because the gasoline futures are moving in line with the oil futures, and it sucks. Even worse, the high price of oil will undoubtedly continue to eat away at the equity markets, thus driving down returns and making average investors skittish, and before we know it the economy could be mired in a recession. What's that, you say? Surely the markets wouldn't react that way to a stunt trade? Ha! If a hot dog vendor outside the New York Stock Exchange ran out of soda at lunch, somebody would short PepsiCo within five minutes, and just because they could.

Yes, I do realize oil futures would have almost certainly hit $100 anyway, but that's not the point. The point is that Captain Nefarious here purposely kicked it off, and it was a real jerk move. I hope the guy ends up down-limit on some huge contract he went all-out on margin for, and he gets a margin call, and his creditors send forth swarms of officers to harass him and eat out his substance.

Oh! That reminds me. Short cotton*, because the commodities exchanges are going computerized, which means a whole bunch of the floor traders will eventually have to find other work, and there won't be near the demand for those funny-colored sport jackets they wear. You heard it here first!

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* Don't even think about doing it, even if you want to. Just don't. Put your money in an ETF or something. Crikey.

Posted by Benjamin Kepple at January 5, 2008 12:12 AM | TrackBack
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