How Global Oil Prices Were Raised $1.50 by a Drunk Trader

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Hey, I suggested this video topic maybe around a month ago? I haven't heard anything back, how do I get my free t-shirt? Thanks!

👍︎︎ 6 👤︎︎ u/spurki 📅︎︎ May 01 2020 đź—«︎ replies
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This video was made possible by CuriosityStream. Get an annual subscription, including access to Nebula, for just $12 a year for a limited time at CuriosityStream.com/HAI. Everybody does dumb things when they’re drunk. Maybe they send an embarrassing text or spill a secret or knock over a vase or accidentally upload a YouTube video to the wrong channel or fall down a flight of stairs or, you know, trade $500 million in petroleum futures. I mean, be honest, who among us hasn’t disrupted the entire global oil market after having a few too many shots of Tennessee Mouthwash? Really, nobody else? Well then I guess it’s just the one guy, then—this guy to be exact: Stephen Perkins. On June 29, 2009, Stephen Perkins was returning home to London after a golf weekend sponsored by his employer, PVM Oil Futures. It had been a great weekend of hitting little balls into slightly bigger holes using weird, expensive sticks, and all the while, Perkins had been chugging down the devil’s water. Around midday, he started sipping on some more bottled sunshine, and that night, he blacked out completely and began doing what drunk people do best: trade oil futures. Specifically, Brent crude oil, which is classified as a sweet light crude oil. Even though “sweet light crude oil” sounds like a low-calorie alternative to canola oil, my favorite refreshing beverage, it’s actually a technical term: sweet means the oil has less than 0.5% sulfur, light means it has low viscosity, and crude of course means that it curses like an angry sailor. The next morning, Perkins woke up to discover that not only did he feel like he had been tucked into bed by a bus, but also that he had made a terrible, terrible mistake: between 1:22 am and 3:41am, Perkins had traded 7 million barrels of oil—to be clear, he didn’t trade $7 million worth of oil stocks, he literally traded 7 million barrels of oil, valued at about $500 million. Well, technically it was future oil, but to understand what that means, I’d have spend a bunch of time explaining what a futures market is, and why would I ever do that to you in a video that’s supposed to be fun. So basically, a future is a financial instrument that allows someone to make an agreement to buy some asset—usually a commodity, like sugar or gold or coal or whatever—at a fixed price at some point in the future. It started as a way for people who make stuff to not have to worry about price fluctuations in their materials: for example, let’s say I make cornbread, and so I always need to buy corn. But the problem is, the price of corn is always changing, and I don’t like the risk and instability that creates: like, what if the price gets so high that the cost of the corn is greater than what I sell my cornbread for? That would really suck. So I make a deal with the farmer: I want to go ahead and buy next year’s corn at an agreed price: and I offer the farmer $3, because 3 is a magic number and because choosing a whole number makes the YouTube video easier to follow. Then the farmer says, “what do you mean, YouTube video,” and then I remind the farmer that he’s not real and that I made him up for this example, and then we agree to the deal. So a year from now, the farmer will bring me the corn, I’ll pay him the $3, and bingo bango bongo, I’ll have my corn. If the price of corn goes down over that time, oh well, I could have saved money. If it goes up, great, I paid less that I would’ve had to. That agreement with the farmer is called a future. But the thing is, Wall Street has this perverse fascination with making money, for some reason, so fancy business people in fancy business suits starting doing a bunch of fancy business stuff with futures, and began treating them sort of like stocks, hoping to buy them low and sell them high later. But what’s weird about futures is that technically, if a Wall Street futures trader were to buy $1 million in corn futures, and he never sold it, at some point a farmer would deliver to him $1 million worth of actual corn, but that never happens, except for when it does. Anyways, by buying up all those oil futures, Stephen Perkins artificially increased the demand for oil, essentially making it seem like people wanted oil more than they really did. And when demand goes up, so does price—at least, as long as supply doesn’t change, which in this case it didn’t—which means that by randomly buying $500 million of oil futures, Stephen Perkins actually increased the global price of oil by, like, a lot. Over the two hours he was trading, oil prices went from $71.40 to $73.50,—the highest it had been in eight months—and because Perkins was responsible for 69% of all trades in that period, about $1.50 of price hike can be attributed directly to Perkins’ drunken dealings. Normally, that kind of sudden spike only happens as the result of major world events, like a war in Saudi Arabia—not because a Brit had too much pirate juice. Now, to you or me, this is a hilarious story of a drunken idiot doing something dumb, but it turned out the British FSA, or Financial Services Industry, didn’t think it was quite as funny. They conducted an investigation and found that what Perkins had done was illegal market manipulation and fined him 72,000 pounds, to be paid in 36 installments. In addition, he was barred from working as a trader for at least 5 years, but because finance bros seem to only be able to fail upward, two days after the ruling, Perkins got a new job making training manuals for new recruits at a Swiss biofuels brokerage company. So don’t worry: the training of future financiers is in good hands. Stephen Perkins spent money very poorly, but you know who didn’t spend money poorly: CuriosityStream, when they gave me and a team the money to fly across the world to the Republic of the Marshall Islands, where we made a feature length documentary called “The Final Years of Majuro.” If you want to prove to CuriosityStream that they didn’t spend their money poorly, it would mean a lot if you went and watched it. We worked really hard on it, and I really think you’ll like it. It’ll be released this Tuesday, May 5th, on Nebula, which is a streaming service with content from a ton of great educational YouTubers, that you can get a free subscription to when you sign up for CuriosityStream at curiositystream.com/HAI. Normally Curiosity Stream only costs $20 a year, but for a limited time it’s only $12 a year, so if you want to see our original, exclusive projects on Nebula, or any of CuriosityStream’s thousands of top-quality documentaries, now is the time to sign up.
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Channel: Half as Interesting
Views: 1,419,583
Rating: 4.9194918 out of 5
Keywords: oil futures, oil prices, comodities, trading, strange, wall street, commodity trader, traders, finance, hai, half as interesting
Id: -l1ZnQI6odA
Channel Id: undefined
Length: 6min 30sec (390 seconds)
Published: Fri May 01 2020
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