Money Matters

Monday May 26th 2008

It’s been a good year for Andrew Serotta.

The American trader has made a £100m killing from oil futures he bought about nine months ago, the Sunday Times reported.

But what exactly are futures? And how can you make money from oil while it causes problems for everyone else?

Futures are essentially contracts which commit a buyer to paying an agreed price a later date.

Last year, oil cost around $70 a barrel. Most traders seemed to think that the price of oil would fall in 2008. But not Soretta. He predicted that the price of oil would rise, so he bought 40,000 futures linked to the price of oil at $80 a barrel.

Now, oil is worth around $135 a barrel. Soretta’s $80 price seems absurdly low, and he certainly has had the last laugh. One trader commented: “You have to admire a bet like that. Most traders don’t even bother to get into stuff that’s so exotic.”

Serrota’s company, the Geneva-based energy firm Vitol, has its £100m. Serotta was even named Commodities Trader of the Year.

But the question remains: how much higher can the price of oil go?

And how many people are making dangerous bets on oil prices that won’t pay off so well?

Previous blog entries:

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