Mitsubishi's Singapore unit loses US$320m in rogue oil trades

[TOKYO] Mitsubishi Corp said a rogue oil trader at its Singapore unit has lost the company US$320 million in unsanctioned derivatives deals.

The unidentified employee from Petro-Diamond Singapore Pte has been fired and reported to police, Mitsubishi said in a statement.

The employee was hired to handle its oil trade with China and engaged in repeated "unauthorised derivatives transactions" since January, disguising them to "look like hedge transactions", it said. The unit has closed the positions and Mitsubishi is still assessing if the trades will impact its earnings.

The oil market has a long and colourful history of trading busts. Metallgesellschaft AG suffered a US$1.2 billion loss in 1994 when a hedging strategy failed. In 2004, China Aviation Oil suffered its infamous US$550 million blunder, when the company fell afoul of a surge in prices that forced it close speculative trades.

Another Japanese trading company, Mitsui & Co, was forced to close its Singapore oil-trading unit in 2007 after a trader lost US$81 million in hidden naphtha trades the year before. The dealer and his supervisor were imprisoned. And in December last year, two top officials at Chinese oil trading giant Unipec were suspended following losses of about US$656 million.

In the latest scandal to befall the industry, Mitsubishi said its employee manipulated data in Petro-Diamond's risk management system so that the transactions appeared to be associated with actual trades with customers, it said.

"Large losses from derivatives trading" were incurred since July as the price of oil dropped, and the unit began an investigation into the transactions in the middle of August when the employee was absent from work, it said. The Petro-Diamond trader was fired on Sept 18 and reported to police the next day.

 BLOOMBERG