Crude at $175? Oil traders stress test the future

Posted: April 7, 2011 in US News, World News

Javier Blas
Financial Times
April 7, 2011

Oil at $175 a barrel; copper at $12,000 a tonne and corn at $10 a bushel. As commodity prices rally, the world’s largest trading houses have been busy ‘stress testing’ to be sure their finances can withstand a “super spike”.

The levels are not a forecast – indeed, executives tell me they do not expect such hefty prices – but do signal a “worse case scenario” for which oil, metals and food commodities traders need to prepare.

“Can we reach $175? I don’t think so,” says a trading executive. “But there is a chance of a spike to that level for one or two days if something happens in Saudi Arabia.” The same reasoning justifies tests for copper at $12,000 a tonne (think of an accident at a big mine in Chile) or corn at $10 a bushel, which could, for example, be caused by bad weather during the US planting season in May and June.

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