NEW YORK -- As soon as the bell stopped ringing, I was shouting at the top of my voice.
"Twenty at 30," I yelled. "Selling 20 Oct at 30."
The people crowding around me knew what that meant -- I was offering to sell 20 thousand-barrel "contracts" of crude oil for delivery in October at the market-opening price of $27.30 a barrel -- but most of them couldn't hear me because they were all shouting too.
The din was deafening, the argot incomprehensible to the uninitiated:
"Oct at 10!"
"No, we have 05!"
"Oct trades 20!"
"Oct even for 10!"
"You got 14!"
"Oct 40 for 20!"
Is it possible to shout, listen, write, throw, think and elbow for space amid a mob all at the same time?
It must be, because that's what is required to trade oil futures on the floor of the New York Mercantile Exchange (Nymex) at the World Trade Center in downtown Manhattan. This is the arena where each business day, buyers and sellers determine the price of the most widely watched grades of crude oil -- the price whose upward march during the Persian Gulf crisis has been tracked in newspaper headlines and television broadcasts.
In a simulation arranged by the exchange's directors, a group of journalists took over the crude oil trading pit one evening last week for a taste of life in the futures fast lane. If that was a taste, it's hard to imagine eating the entire meal.
Guided by real traders who helped us understand and execute our orders, we bought and sold at a furious pace, shouting ourselves hoarse and tossing our filled-out sale cards into the pit where the transactions are recorded and broadcast to the world within seconds.
We entered a world where money is not the biggest consideration -- it's the only consideration. With millions to be made or lost in seconds, there is no time for reflection on politics, morality or the human condition. It doesn't even matter what the commodity is. Platinum is traded in the same impersonal way, through Nymex's "open outcry" bidding system. If a customer wants to unload 20 contracts when the price hits $27.50, the trader's only responsibility is to carry out that trade, not to worry about its impact on consumers or Middle East politics.
"If you make a mistake, we'll take it to arbitration and you'll probably get fired," said Gary A. Lapayover, the exchange's training director. He was joking, but accuracy in executing and recording trades here is no laughing matter. Major oil companies and brokerage houses trade on this exchange; a mistake could cost a customer millions of dollars or even affect the entire market.
Before the simulation, Nymex Chairman Z. Lou Gutman told us that "once you've seen trading on the floor at first hand, you'll never think of this business in the same way." He was right. After a brief exposure, we found it hard to believe that the system could function or that anybody could work in that environment.
Lapayover said temperatures on the floor often reach 110 degrees, and we could believe it. Working there takes physical strength to fight through the crowds, stamina to stand, push and shout for hours at a time, and intense concentration. It's easy to understand why the traders are mostly young and mostly disheveled.
We learned that hands held with palms facing out tell brokers who can't hear you that you're trying to sell; palms in mean you want to buy. But how can you put your palms out when you're trying to fill out your sales tickets in ink and your order board in pencil at the same time? How can you record and confirm your sales, keep track of the prices shouted all around you and posted on the big scoreboard overhead, remember your "stop orders" to be executed only at a certain price, and take new orders, all in the environment of an overcrowded wrestling ring?
"It gets to be second nature," Lapayover said.
Oil has many prices, depending on quality, location and terms of sale. But the price most commonly quoted and used as a reference for other transactions is the price of a contract on the New York exchange. Little oil is actually traded here. Instead, traders buy and sell contracts that give the holder the right to acquire oil at the contract price in a specified month.
The price of a contract here becomes a baseline for sales of real oil -- "wet barrels" -- throughout the world, much the same way as the prime interest rate becomes a baseline for commercial loan transactions.
Contracts are being traded now for oil to be delivered well into 1991. The "current" contract, or closest month, is for October delivery.
An October contract at $30 gives the buyer the right to take delivery in October of 1,000 barrels of a specified grade of crude oil at a terminal in Cushing, Okla., for $30 per barrel. If the buyer doesn't actually want the "wet barrels," which is usually the case, he can resell the contract, recording a profit or loss depending on how the price has changed in the interval. The seller's ability to deliver the oil in the event the buyer does want it is guaranteed by the trading firms and brokerage houses that hold seats on the exchange.
This has been a frantic month on the exchange because of Iraq's invasion of Kuwait and the disruption of world oil markets. The price of a contract has doubled since early June because traders expect prices to rise as supplies dwindle. Trading volume has soared. In 1989, the average daily sales volume was 81,812 contracts, according to Nymex records. In July of this year, it was 91,096 contracts. In the week that ended Aug. 17, it was 98,316.
Most consumers are aware of this activity only through the bottom line: rising prices at the gasoline pump and heating oil tank. It's just as well they don't have to follow the transactions here.
An order ticket handed to a floor trader by a runner might read: Sell 10Q CL MOC. That means, sell 10 contracts on August crude oil at the market's closing price. Or it might say: Buy 50F HO 5420x. Those instructions mean, buy 50 January heating oil contracts when the price hits 54.20 cents a gallon, and only then.
Why is January represented by F, August by Q, October by an inverted V?
"I don't know," Lapayover said. "That's what they taught me when I came here. It's uniform on commodity exchanges in this country."
The seller is responsible for having the transaction posted on the big board and the exchange's computers. Each transaction is recorded on a card that lists the buying and selling brokers, the commodity, the month and the price. Once filled out, the card is literally hurled into a well, or pit, where a clerk enters its information into the computer. As often as not, the price will change between the time the two brokers agree and time the card is thrown.
One order I was instructed to execute was for a sale at a price below the market opening price. Why would a customer want to sell later in the day for less than he could get right off the bat? Because, one trader explained, that customer is guessing that the market will go down and he is limiting his losses. If it goes up, he still owns the contracts, which will be rising in value.
My completed order pad for our brief "trading day" shows that I succeeded in unloading the 20 contracts I was trying to sell at the opening bell, but not fast enough. In the 15 seconds it took me to find a buyer, the price dropped a nickel and I had to accept $27.25, instead of $27.30, a barrel. It cost my hypothetical customer $1,000.