Oil Prices
An oil tanker for blending to reproduce low-sulphur fuel oil with half-finished products (Photo: Reuters / SK Trading International)

Japan's largest trading company Mitsubishi Corp has reportedly lost over $320 million at its Singapore unit due to unauthorized transactions made by a rogue oil trader. The transactions were reportedly disguised to look like legitimate hedges for customers.

The identity of the rogue trader was eventually confirmed to be a single employee at the company's Petro-Diamond Singapore Pte. According to the company, the Chinese national working at its Singapore subsidiary has been fired and reported to the police. The company had declined to reveal the name of the rogue trader, which it hired back in 2018 to handle its oil business with China.

Separate reports citing sources close to the matter had revealed the identity of the trader as one Wang Xingchen, also known as Jack Wang. Employees at Petro-Diamond's Singapore office had confirmed that Wang was no longer working for the company.

The trader reportedly made several unauthorized transactions since January. The transactions were made to look like actual hedge transactions, which is why it took such a long time for the company to flag them.

Mitsubishi revealed that the trader had also manipulated data in Petro-Diamond's risk management systems to make it look like the transactions were associated with actual trades made by customers.

As the price of oil dropped in July, large losses were incurred from derivatives trading.

Due to the unusual amount of losses, the company launched an investigation into the transactions in August. In July, Brent oil prices had dropped by more than 16 percent from its peak of $67.01 to as low as $56.23 in early August.

When Petro-Diamond realized that it could incur further losses from the derivative positions and that those positions weren't associated with any transactions with customers, the company quickly closed all of its positions.  

Mitsubishi Corp has reportedly filed a criminal complaint against the rogue trader. The company has also launched a wider investigation into its other companies to see if any similar improprieties are taking place. Preliminary findings by the company's internal risk management investigation team have reportedly found "no such problems or risks" at present.

The $320 million loss incurred by the company is less than one-tenth of its projected profits for the year. Japan's largest so-called Sogo Shosha is expecting its full-year net income to reach at least $5.6 billion this year.

Bad bets on the oil market have caused quite a lot of trading firms to lose big bucks. In 1994, Metallgesellschaft AG had incurred losses of more than $1.2 billion after its hedging strategy had failed. In 2004, China Aviation Oil lost around $550 million when it wasn't able to bet on the right oil price movement.