Day in the Life of An Energy Trader

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IT was just another day on the trading desk at Flippum Energy Partners.

I decided to drop by and see what the traders thought about crude oil prices, which closed above $89 a barrel Thursday, setting a record.

"The prices have consumers worried. What does it all mean?" I asked Lefty Dollarhyde, the head trader.

"It means oil is going to $100 a barrel before Thanksgiving," Lefty said. He spoke without taking his eyes off of the bank of computer screens in front of him. Their glow bathed him like a tanning bed. He hammered furiously on the keyboard.

"What can we do?" I asked feebly over the clacking.

"Go long oil. That's what we're doing. We've maxed our position."

"If oil keeps rising, doesn't that mean gasoline will soon follow?"

"Nah," Lefty said out of the corner of his mouth. "We're short gasoline. Nobody's driving."

"OK. If nobody's driving, then won't demand for oil eventually fall?"

Lefty's fingers froze over the keys. He paused for a moment, then leaned back in his chair and called to another trader sitting in the next row.

"Hey, Slick! Check the stockpiles. Whatcha got?"

Slick responded with a litany of numbers and place names, but he talked so fast I couldn't write them down.

Lefty returned to the screens.

He picked up the phone and punched in a few numbers, cradling the receiver on his shoulder.

If I understood his staccato instructions, he was placing an order for January puts, a bet that prices would fall. I was confused.

"Didn't you just say oil was going to $100?"

"Nah," he said, the phone still against his ear.

"Stockpiles are fat. It's going down. It's nuclear winter, baby. A major glut. We're shorting crude big time."

Before I could ask another question, Slick yelled back across the room.

"OPEC's not budging on the production quotas, Lefty."

Lefty uttered an expletive and pounced on the phone again. Now he was buying.

"Wait, I thought you were selling," I said.

"OPEC's squeezing the world, man. Prices are going to the moon. We're talking 1979. Gas lines, 'Freeze a Yankee,' that sort of thing."

Suddenly he stopped, holding the phone receiver in midair. Then he slammed both fists on his desktop and spun around toward Slick.

"Hey, Slick, look at these weather forecasts. It's gonna be hotter than a bear's butt through February!"

He whirled around, and he was selling again. I didn't even have to ask. By now, Lefty realized I wasn't keeping up.

"They're calling for a warm winter," he said. "That means no heating oil in the Northeast. Prices are gonna drop like a bowling ball."

As Lefty typed furiously, I looked around and saw a group of traders gathered around a television across the room. They appeared to be ogling Maria Bartiromo. Suddenly, one of them turned away and shouted in our direction.

"Lefty! Turkey's amassing troops at the Iraqi border. It looks like an invasion." Geopolitical scares Lefty unleashed a string of profanity so foul it singed the pages of my notebook from 2 feet away.

He shook his head.

"See? Geopolitical conflict. That's what it's all about. We got a new war. No oil's getting through. Bundle up, baby, we're all burning trash to stay warm this Christmas."

He was on the phone again, going long on crude.

As he put the receiver down, Herb Flippum, the firm's founder, walked up. We chatted a few minutes as Lefty continued to stare at his computer screens. Flippum patted Lefty on the shoulder.

"Hey, Lefty, remember my neighbor who bought that huge SUV, the Ford Subdivision? He told me this morning he's selling it and getting a Yaris."

Flippum walked off shaking his head and chuckling to himself. Lefty was already on the phone. Anecdotally speaking "See?" he said. "That's what makes us different. I factor anecdotal evidence into my positions. If a guy's selling his SUV for an econo-bug, that tells me demand is falling off. Prices will hit $75 before they hit $100."

He leaned back in his chair to catch his breath.

He looked at me, as if he just realized I'd been sitting with him all morning.

"So, what do you want to know?"

"Well, I was hoping to explain to my readers what's happening with oil prices."

"Oh," he said with a shrug. "You just have to understand the markets."

Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at [email protected]. His blog is at http://blogs.chron.com/lorensteffy/.