Oil Trading Freezes Up

The freeze in the credit markets and distrust of counter-parties appears to be putting the spot market oil trading on ice. We hear that nobody is trading on an key oil spot market trading platform these days.

The Platt’s “Market On Close” window is used when companies bid and offer over the counter oil contracts at the end of the day, using Platt’s as the common market. Basically, Platt’s is a market facilitator here rather than a market maker or a clearing house. The action at the window helps Platt’s list spot oil prices in various markets, and the Platt’s pricing is used as a benchmark by many traders.

Right now trading at the MOC window has seized up, which could result in less transparency in oil pricing. It appears that fear of counter-party risk is driving down trading through the MOC window. Several oil buyers may also be experiencing liquidity shortages, taking buyers out of the market. In addition, global demand for oil may be declining as the world’s economies slow down.

“Credit crunch thought to be at fault, nobody trusts anybody,” said one person familiar with the matter.

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