This morning, we wondered how BP was able to profit from a juvenile scheme to fix the price of propane. After all, you can't just buy up the market in hopes of pushing up the price without driving down the price during the selling phase, right? Well, it turns out that they didn't profit at all; in fact BP lost money.
This note lays out the figures (conspicuously, the CFTC never mentions the actual profits made in this fiasco, only the expected profits). BP had 5mm BBL's, and expected to sell 2mm BBL's in Feb, and roll only 3mm BBL's, but instead they only sold 0.7mm BBL's in Feb and rolled 4.6mm BBLs, where they made 25 cents on the stuff sold in Feb, and lost 6 cents on the propane rolled (unsold). If k*(0.25*2mm-0.06*3mm)=$20mm USD, k=0.47 (where k is some gross up to account for the units they are using), then if we replace 2 with 0.7, and 3 with 4.6 , they actually lost $4.7mm (probably a little more, because they bought an additional 0.3mm barrels at inflated Feb prices)! This is the classic squeeze problem: you can push a price up, but you can't sell at the peak price, or even close to it.
This is a case for self-regulation. I'm sure BP wouldn't do this strategy again after such a failure. Now regulators are just piling on because tapes show intent. I'm sure many traders push around equities, on a much smaller scale, with the same intent, and I'm sure it's just as successful.
Of course it doesn't matter that they lost money on the scheme, cause it's a matter of justice, fairness, equity, level playing fields, hardworking Americans, rural propane users, pulling together... (insert platitudes here).
Market "Corners" Are More Evil than Profitable [Mahalanobis]