Vitol Trader Asked to Go as Firm Shifted Its Strategy

By Grant Smith

Jan. 8 (Bloomberg) -- Andrew Serotta, a former Vitol Group oil trader, said he was asked to leave a Houston-based unit of the closely held commodities firm because the company wanted to focus on physical commodity markets rather than more “visible” derivatives trading.

Serotta, 38, departed Vitol Capital Management, which operated “essentially a hedge fund,” because Vitol “did not want to move forward in the derivatives world, but remain focused instead on physical trading,” he said in a telephone interview from Houston late yesterday.

Vitol’s decision to “shrink” its involvement in the derivatives trading used at Vitol Capital Management was linked to the reclassification of the unit’s trades by U.S. regulators as speculative, Serotta said.

Vitol spokesman Don Goldberg, speaking from Washington, said yesterday that the Commodity Futures Trading Commission, which regulates U.S. markets, has not notified Vitol of any change in its trading status.

The CFTC classifies futures transactions as those made by physical, or commercial, market participants to hedge price exposure, and those made by speculative, or non-commercial, parties such as banks and hedge funds. Both kinds are valid transactions and the U.S. regulator publishes weekly snapshots of total positions in the different categories, though it doesn’t identify individual companies.

Physical Versus Futures

“My experience is in the derivatives end of things, a very different business” from the physical market activities in which Vitol traditionally participates, Serotta said.

In the physical market, companies exchange actual cargoes of crude and refined products. For example, in late December Vitol was bidding for a shipment of North Sea Forties crude oil. These transactions are not subject to the same scrutiny by regulators as futures trades. Vitol also operates a majority-owned refinery in Fujairah, United Arab Emirates, which it uses mainly as a storage facility.

Derivatives are financial instruments used to hedge risks or for speculation, based on the underlying prices of stocks, bonds, loans, currencies or commodities such as oil.

The Wall Street Journal reported Dec. 24 that at one point in July, the Vitol hedge fund had amassed futures contracts on the New York Mercantile Exchange that represented 11 percent of all crude- oil bets on the exchange. Serotta said yesterday that he was not aware if any trader at Vitol Capital Management had contracts that amounted to 11 percent of the market.

Vitol was possibly “not looking for the visibility that comes with derivatives trading,” Serotta said. He said he is considering his next venture, which will likely be in the hedge fund business.

Goldberg, the Vitol spokesman, said that Serotta’s departure this week “has nothing to do with any regulatory issues,” and is rather because his strategies “were not a good fit” within Vitol’s business.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net