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London crude trading’s ‘Good Old Days’: The rise of London

Colin Bryce continues his oil markets story, looking at the characters that shaped the UK capital’s prominent role

The prologue to the start of oil trading as a widespread activity in London played out largely beyond the UK. The 1973 oil embargo, the loss of power by the so-called ‘Seven Sisters’, the fall of the shah of Iran and the subsequent squeeze on oil availability—followed by a price-shattering surplus—were all events far from British soil.

The UK’s government’s creation of the British National Oil Corporation (Bnoc) was an obvious exception, as discussed in part one of this series. Nonetheless, it would have been difficult to predict the speed with which markets—as we know them today—became established and the profession of oil trading developed in London, alongside other key centres across the globe.

Over the last 40 years, the practice of oil trading—as well as the people and places, strategies, economics, politics and scandals—has developed and changed. Much has been written on how to trade oil, on the analysis of price formation (not least by thinktank the Oxford Institute for Energy Studies, led by the late Robert Mabro), on Opec and on the contribution of the industry to the economy as a whole.

Pioneers

But little has been recorded about the people, the places and the development of trading, especially over the first 10 of the last 40 years. And, with the recent untimely death of one of the talismanic figures of oil trading through the period—Vitol’s Ian Taylor—it appears the last of the founders of the competence of North Sea oil trading are at the end of their era.

This series aims to revisit certain of those times, people and places, albeit with the benefit of hindsight. The 40-year era can be conveniently split into three parts—the rapid growth of physical trading in the 1980s, the derivatives revolution and financialisation of the 1990s, and a third subsequent period of asset-backed trading up to the present day.

I will focus mainly on the early part of the era, where recollections are liable to soon be lost to failure of memory and worse. It will be for others to recollect more fully the details of the 1990s, 2000s and 2010s.

And this is only one participant’s narrow view, to which others who operated during the period could usefully, and perhaps more accurately(!), add. This way an interesting contributory social history might be created for others in time to study.

The 1980s

In addition to the increasingly ready availability of physical oil cargoes on the spot market—typically surplus barrels looking for a home—the early 1980s saw the creation of the 15-day Brent market. This was an especially important enabling moment in the history of liquid crude oil trading.

Credited by some to the Shell UK trading team led by Peter Lane and by others to the US’ Conoco—led by the wily and well-liked Welshman, Player Edwards—this market found its place as a venue to dispose of ‘wet barrels’ through initially paper chains. But, perhaps more importantly, it also served a means of establishing a demonstrable and advantageous tax price for producers of North Sea oil who needed to transfer barrels to their refining businesses at an arms-length price.

So-called ‘tax spinning’ cemented the place of this over-the-counter market, and its liquidity attracted the types identified by Texas Monthly in the first part of this series. A kindlier representation of the participants can be attempted, even if there is a grain of truth in the magazine’s characterisations!

The early 1980s saw the creation of the 15-day Brent market. This was an especially important enabling moment in the history of liquid crude oil trading

The 15-day market was to be front and centre through the 1980s. And, with improvements and amendments over the years often (muscularly) promulgated by Jorge Montepeque of price reporting agency Platts, it remained so through much of the last 40 years.

In its early stages it was effectively run by Shell UK, who policed the market with an enlightened form of self-regulation (if not entirely for altruistic reasons). The cerebral Mark Uffon knew the constituent parties of every chain, and the market was heavily traded by the late and much-missed “voice of reason”—Shell UK’s chief trader Peter Ward. He was always available after ‘stats’ on a Tuesday night, undoubtedly with an Embassy filter in his hand and an ashtray by his side.

Trading places

The milieu evolved mainly in London and particularly around the Mayfair and St James districts, although there were outlying small trading hubs. In Scandinavia, jamming Stavanger prawns into the overhead locker on the flight home was fine… barring any lengthy delay on the tarmac!

In Spain, allegedly, the well-stuffed envelope was a critical tool of the trade, whereas, in Paris, enarque-fuelled status issues meant business was best left to French-on-French, albeit Elf’s senior ‘homme commercial’ Bernard de Combret was an important early enabler of trading. Even closer to home but ‘up north’ in the UK, the incumbent at chemicals firm ICI on Teesside excelled as a tenor soloist in addition to being, allegedly, an oil trader.

There were the informal branch offices—The Coal Hole in the Strand for Shell UK, the Red Lion in Duke of York Street for Finland’s Neste and the Kings Arms for Bnoc, among others… There was a Mr. Corbani and a Mr. Carboni—most confusing after an afternoon in a branch office! Green’s Oyster Bar, the Guinea Grill, Langan’s, Simpson’s in the Strand, Mr. Kai and many other convenient eateries were the beneficiaries of a lunch-a-lot culture.

Big beasts

The big names of the day were Andy Hall and John Deuss—although neither were located in London. Hall, ex-BP but leading Phibro at the time, had the biggest risk appetite and frequently ‘cleared’ the markets, both physical and paper, of residual distress cargoes. Indeed, it is worth remembering just how dominant Phibro were in these North Sea markets, and further afield, under Hall's legendary leadership.

John Deuss of trader Transworld Oil was considered something of a figure of mystique, as he directed his trading operations in London and the US from his Bermuda base. Rarely seen in Langan’s, where everyone else in the industry dined and listened in on each other’s gossip, he and his firm were alleged to have executed a well-documented but ultimately unsuccessful squeeze on the Brent market at one point. It would not be the only one … allegedly!

Many of the chaps—and they were predominantly men—who populated the oil trading circus in London were ex-Big Oil. They were the mature marketing men of the likes of BP and Shell, recruited to afford respectability to the new entrants. There was an element of the insouciant contentedness of Kipling’s Shere Khan about many of them, perhaps even a Kaa or two as well. They knew a good lunch and a fine wine when they saw them and were able to find their way around the restaurants of Mayfair with consummate ease and overwhelming politeness.

There were also many on the margin that, seeing the potential prize, came after the big bucks. Some were more sophisticated than others. One individual unsuccessfully worked the market out of a phone box in Essex—only to be regularly cut off at the sound of the pips as he ran out of coins!

There was a distinct lack of women at the party, although there was the occasional notable exception. Eija Malmivirta rose to a most senior level at Neste, as did Liz Bossley at the UK’s Enterprise Oil, Bridie Tobin at Britoil, Nancy Kropp at bank Morgan Stanley and the formidable Doris Balzer at URBK—reputedly the buyer of the first spot cargo to be loaded out of Sullom Voe.

And there was even less BAME representation. Although Asians dominated the Far East business and the natives of the Middle East their geography, there were few black traders on the senior front lines (although Edith Cooper deservedly rose from the commodities business of Goldman Sachs to head HR for the firm globally during the 1990s).

Yet there was undoubtedly a ‘buzz’ as the new markets tested the very edge of the envelope. And there was a distinct intellectual satisfaction which attracted highly capable individuals—from structural geologists to botanists by educational background—in addition to those seeking the riches of performance-related pay or even the (albeit low) probability of a speculative windfall.

Colin Bryce is a founder of consultancy Energex Partners and has 42 years of experience in oil trading. Part three of Colin’s six-part London crude trading’s ‘Good Old Days’ series will be published early next week.

If you ‘were there’ and would like to add your memories of the events, characters and locations that shaped the development of the London crude market, please reach out to peter.ramsay@petroleum-economist.com to discuss how to contribute.

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