Monday, Mar. 12, 1979

The Hustling Price Gougers

Fast deals, broken contracts and big profits

Riding on a lot of contacts, a line of credit and sheer gall, a troupe of about 300 international profiteers have become the principal beneficiaries of the galloping oil price increases that occur daily on the "spot market." They are the mysterious players in a loose old-boy network of private investors, former oil executives, foreign government officials, Arab sheiks and assorted middlemen, brokers and hustlers. "Many of them," says Joe Roeber, a London-based analyst of the spot market, "got out of trading used tires or razor blades or whatever else they were doing to start dealing in oil." Adds Roeber: "There is very little morality in this business."

Unlike a stock exchange, the spot market has no big board, no floor, and at present, no ceiling--on prices anyway. It is often called the Rotterdam market because most of the world's spot oil moves through that Dutch port city. But the spot market exists anywhere that a trader with a shipload of oil available for immediate sale can connect with a big-ticket buyer. Transactions can be and have been made in London, Houston, Hong Kong and Eleventh Avenue diners in Manhattan.

When supplies fall short of demand, even by a small amount, the number of deals is multiplied and the spot price spurts to whatever the market will bear. The official OPEC price, under which most oil is traded on short-term contracts, is now $13.34 per bbl. But last week some desperate, we'll-pay-anything customers took spot shipments of oil at $28 per bbl. Meanwhile, a number of sellers have been asking, but not necessarily receiving, as much as $34 per bbl.

Naturally, there can be enormous rewards for anybody who can lay his hands on a cargo of oil that is not locked up by a sales contract. Sometimes operating out of telephone booths, profiteers have been offering deals on as much as half of Indonesia's total production, which local politicians are said to have got their hands on. Oil cargoes have been sold four and five times while the tanker was still on the high seas, and each subsequent owner has pocketed vast profits. At a dinner of the Institute of Petroleum in London two weeks ago, while guests sipped cocktails and swapped tales about their spot profits, one trader offered to sell a 50,000-ton cargo of heating oil at $260 a ton. Then he disappeared and discovered that in New York City the spot price had risen to $300 a ton. He withdrew his offer and next morning found a buyer at $316. The trader's profit between dinner and lunch came to $2,850,000.

In addition to the individual marketeers, several dozen oil companies trade in the spot market. They are not the well-known and much-criticized oil majors but smaller outfits like Monte Carlo's Essex Oil and Rotterdam's Nedol, Vanol, Petrosun and Northeast Allied. There are also specialized commodity trading firms like Marc Rich & Co. Such firms like to keep their dealings--and those of their clients--top secret. At Rich's Park Avenue offices in Manhattan, backroom telephone trading operations are conducted behind locked doors that are electronically controlled by a receptionist at the front desk. Queries to most U.S. trading offices from potential new buyers or sellers are generally met with a surprised "How did you get our name?" sb

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