Jim DeLoach is managing director at the Houston office of risk and business consulting firm Protiviti. DeLoach says oil and gas companies need to have strong internal controls to lower the risks posed by rogue commodity traders. He says the key is asking the right questions.
“Are we using derivatives to speculate on markets or to hedge? Do we know what our risks are and how they are sourced? And is our compensation structure encouraging unacceptable risk taking? These are the tough questions that need to be asked from time to time to make sure that the trading activities are in line with the oil and gas companies’ objectives.”
Just as with financial services, a rogue oil or gas trader can do far more than hurt his own company. In 2009, a broker at London’s PVM Oil Futures burned through more than half a billion dollars trading while drunk. The late night binge caused global oil prices to spike to an eight-month high.