Uncovering the Secret History of Wall Street’s Largest Oil Trade

The men huddled in the same first-floor conference room as always, only this time they’d decided to make their annual oil bet bigger and bolder than ever before. Fewer than a dozen representatives from three Mexican government ministries and Petróleos Mexicanos, the state energy company, were about to make a wildly contrarian play. If it paid off, the profits would be enormous. And if they were wrong? They would have spent a small fortune in vain.

Almost seven months earlier, at the beginning of January 2008, the price of oil had flirted with $100 a barrel for the first time in history. It retreated to below $90 by the end of the month, but then, in early February, the price took off. West Texas Intermediate, the U.S. benchmark, reached a new high every month—$103.05, $111.80, $119.93, $135.09, $143.67—until finally, in early July, it hit $147.27 a barrel. Seemingly insatiable demand from emerging economies, including China and Brazil, encouraged outrageous chatter of $200 a barrel among the giddiest traders. Even those with bearish outlooks were fairly optimistic, figuring there would be a correction, not a crash.