Newspaper article The Evening Standard (London, England)

Deal That Highlights Oil Change

Newspaper article The Evening Standard (London, England)

Deal That Highlights Oil Change

Article excerpt


THE oil sector came to life this week when Hunting, an AIM-listed company, announced the ?626 million sale of its Canadian interests to Riverstone, a New York-based private-equity house in which former BP chief executive Lord Browne has an interest. But in the excitement no one focused on how the deal was very nearly derailed by the collapse two weeks ago of SEM, a North American oil trader which was also heavily backed by Riverside.

SEM folded with losses of $2 billion (?1 billion) or more after Barclays Capital took over its trading positions and closed them out when the American firm admitted it could no longer meet its liabilities, having zigged when it should have zagged in the volatile oil futures markets.

BarCap says it was involved only because it was asked to help, being one of the few houses big enough to handle trades on this scale without alerting the market to the problems. Others, admittedly with no evidence, mutter darkly that BarCap is not a charitable organisation and suggest it was probably involved more deeply than it cares to admit something BarCap insists is not true.

Be that as it may, it was almost very bad news for Hunting because all the banks that had agreed to finance Riverside's purchase of its Canadian business immediately got cold feet after SEM's collapse. It took two weeks of promises and extra guarantees to give them enough comfort to lure them back to the signing ceremony, though this week they finally got them there..

The same people who are sceptical about BarCap also say SEM's demise is a symptom of a much deeper malaise in the oil markets. Their thesis is that for the past year the market has been driven higher by an informal conspiracy of oil-producing countries and major finance houses, who between them have used supply constraints and financial market power to send prices through the roof and way beyond the fundamentals of supply and demand.

This is all too fanciful for my taste.

It is an unlikely alignment of interest and cock-ups is generally a far better explanation than conspiracy for most of what happens in the City. But there is no doubt that the oil price, having dropped $20 since this column predicted it had passed its peak a month ago, now looks to be at one of those tipping points where it will either recover or fall sharply as the speculators pull out.

Given that August is a month when the number ones on trading desks head for the beach, leaving their number twos to make a mess of things, it would be no surprise at all to see oil back down below $100 by September.

Legal burden is hurting pensions IT IS a frequent complaint of those who run pension funds that they spend more time on regulation than on anything else, but it took the annual survey of pension fund accounting from consultants Lane Clark & Peacock to demonstrate what this means in practice. …

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