WATCHING THE WORLD A QUIET DAY ON IPE'S LONDON TRADING FLOOR

Fifty or so young men, many wearing garish jackets with company logos and others in shirtsleeves, were shouting at each other around a pit on the floor. The pit was the size of a large garden pond.

The pit was one of three in a large room lined with tiny booths filled with telephones and computers. From the booths another 50 men were shouting to those around the hole while talking into their telephones.

Everyone in the room was high on adrenaline. It was approaching 5:30 p.m. on the trading floor of London's International Petroleum Exchange (IPE), and gas oil trading was about to close.

Yet Phil Llewellyn, IPE's floor manager, told me that this was a relatively quiet day's trading. Things might get a little noisier when the Brent crude oil trading pit closed at 8:15 p.m., he said, but Brent trading also had been quiet.

So why, I asked, in the age of telecommunications, are a group of young men standing around pits and shouting at each other in order to make deals? Could it not be a little more, well, civilized?

FAIR PLAY

Llewellyn explained that the pit traders were offering prices to sell and bidding to buy contracts. A contract entails 1,000 bbl of oil in the Brent pit or 100 metric tons of gas oil in the gas oil pit.

"All the traders' offers and bids must be heard at the opposite side of the pit," said Llewellyn. A trader must stand in the pit to conduct business, and the "open outcry" gives everyone a fair chance to bid on a contract.

Richard Ward, IPE's director of product development and research, said the men in the pit get instructions from phone traders in the booths, telling them at what price they should buy or sell.

The phone traders are in turn talking to their clients. Ward said IPE traders' clients break out as traders and distributors 30%; refiners 24%; investors 18%; producers 16%; end users 6%; and speculators known as "locals" 6%.

Ward said most of the traders' clients use trading as a means of hedging against future fluctuations in oil prices, as well as just to buy and sell petroleum.

SPECULATION

"There are two main types of contract," said Ward. "Futures contracts, the ones traded in the Brent and gas oil pits, fix the price of the cargo at a specific delivery date. These give clients a chance to secure future supplies at a price that suits them.

"Options contracts, which are traded in our third pit, give clients an option to buy contracts at a set date at a fixed price. If the price goes up after the deal, they will most likely take up the option. If the price falls in the meantime, they can forego the option and buy at current market rates."

After gas oil trading stopped, there was a tangible silence. The traders wandered off quietly to unwind in whatever way traders unwind. I asked why they were all so young.

"There are a few older chaps in there," said Ward, "but it's generally a young man's job. Floor traders need to be quick witted, with lots of stamina and a good voice. With age they tend to move on to phone trading and then to backroom marketing jobs."