[bdkoepke]

We had a manager at BP come and present at my University a few years ago on commodity trading.

When he as discussing how BP consistently outperformed the market he didn't call it insider trading directly. If I recall his words were "BP leverages our superior market knowledge to outperform the market". In other words they had significant non-public information due to the fact that BP owns a significant amount of the commodities market. Supposedly the trading branch works at arms reach, but they still have access to production information that isn't available to the public...

One of my favourite university professors invited him to come and speak after the BP Canada Trading Competition: http://people.ucalgary.ca/~sick, http://haskayne.ucalgary.ca/bp-canada-trading-competition-de...

[Mikeb85]

You do know that insider trading rules don't apply to commodities, right?

Furthermore, BP produces the commodity they sell... They're going to make money no matter what. But of course they're going to sell for the most they can.

[bdkoepke]

That isn't completely true, there are some insider trading laws that apply to commodities, in the US anyway. That is besides the point though, the fact that it is legal doesn't mean that it isn't insider trading.

I was commenting on "And there are definitely many traders in these spaces who consistently post outsized returns, which is why they get paid so much."

They outperform the market because they have superior market information...

And of course I realize that BP is going to sell their own commodity for as much as they can. It is just that there are actually pretty strict rules around how much information the trading branch is allowed to receive from the parent company.

[Mikeb85]

See here: http://www.marylandbusinesslitigationlawyerblog.com/2012/09/... And here: http://ccrow.com/newsletters/insider-trading-in-commodities-...

And all the rules are available online. Most of the rules pertaining to commodities are to prevent fraud on the part of brokers, and the few that deal with insider trading deal with government employees that have information concerning subsidies, tariffs, environmental regulations, etc...

> They outperform the market because they have superior market information...

And because of their distribution, economy of scale, storage capacity (so they can wait out the market to get a higher price), refineries, etc...

BP has the advantage of being able to extract oil from the tarsands, store it, transport it, and refine it (their largest US refinery has been repurposed to refine oil sands crude), and their traders expedite the sale of it.

BTW, I happen to be in the same neck of the woods, and have spoken to BP traders here. Not sure what you're trying to read into, but what they do is legal. 100%. Company information is not considered to be 'insider' information for the purpose of commodities trading. Government regulations matter much more to commodities, as do natural events.

[bdkoepke]

Hmm, perhaps it is just Canada then. I thought there was stricter regulation around commodities trading in the US as well. In Canada we do have some regulation around this though (at least in some provinces: http://www.e-laws.gov.on.ca/html/statutes/english/elaws_stat...) The manager from BP was very adamant about the fact that little communication was allowed between the traders and anyone else at BP.

Part of the issue is that BP also sells futures, and they have the ability to influence the futures price. (That is relating to your comment about economies of scale, storage capacity, etc).

I wasn't arguing about whether what BP is doing is legal or not. I was commenting on the initial post which implied that some traders are capable of making commodities trades based on some form of "skill". I was saying that they outperform the market because they have non-public information that gives them an advantage. (i.e. I was trying to dissuade laymen from thinking that they can make a quick buck off of commodities).

Thank you for those articles though. The second one in particular seems very interesting.

[leroy_masochist]

"Part of the issue is that BP also sells futures, and they have the ability to influence the futures price."

BP is a huge company for sure, but it produces about 4mm bbl/d of oil and world production is 90mm. So they definitely can influence the price, but they don't exactly have the market cornered.

What they can do (and other companies with more of a trading mindset, like Glencore, do really well) is utilize the information they get in real-time from the entire length of their supply chain. This isn't non-public information at all, and it'll make its way to the market within hours or days. And it also pertains only to BP's own order/production/delivery flow, which is tightly correlated to the market on a week-to-week, month-to-month basis but not on an hour-to-hour basis.