* Dow Jones Indices cut Brent's share, raised WTI's before
* Mistake may have cost the company some credibility, say
By Barani Krishnan and Claire Milhench
Nov 6 The world's leading financial index group
sowed hours of confusion in global oil markets late on Monday
when it accidentally reversed the new crude oil weightings of
the top commodity index, the S&P GSCI.
S&P Dow Jones Indices, owned by McGraw Hill unit
Standard & Poor's, said on Tuesday that it had inadvertently
mislabeled a table showing how investors should allocate an
estimated $80 billion of funds that track the index for 2013.
The new weights were listed under a "2012" heading, while this
year's were listed as new figures for "2013."
While most of the 24 component weights were little changed,
the two most actively traded contracts - WTI and Brent
crude - saw significant changes that will force
investors to shift some $8 billion from one to the other when
the rebalancing takes effect in early January.
The mistaken data, which was initially published by agencies
including Bloomberg News and Reuters, may not have fooled
investors who follow the index closely.
But the news did affect markets, with the key Brent/WTI
spread widening by $1 a barrel as traders reacted to the
corrected information, which was released two hours later. The
episode threatens to diminish faith in S&P at a time when a
series of glitches across markets have rattled investors.
"You're talking about what is effectively the world's
largest commodity index. For them to send out something like
this without thorough checking is truly surprising," said Sean
McGillivray, head of asset allocation at Great Pacific Wealth
Management in Oregon.
In the original release, a table of production weights
showed CME Group's U.S. WTI crude contract with a target
of 30.96 percent, some 6.25 percentage points more than listed
for 2012. It showed IntercontinentalExchange's Brent
would be cut by 4 percentage points to 18.35 percent.
It would have been a surprising reversal of the recent trend
among indices to boost the weighting of the Brent contract,
which has grown its share of oil derivatives trading.
But in fact, just the opposite was true. The total 10
percentage point change has a notional value of some $8 billion.
S&P realized it had mislabeled the table about two hours
later, and posted a corrected version on its website.
"Apparently ... the (first) percentage weight table had the
incorrect heading. 2012 and 2013 were reversed," Dave Guarino,
spokesman for Dow Jones Indices, told Reuters in an email on
NO ROLL TILL JAN
Later, in a telephone call, Guarino said the index provider
had not received calls from investors or companies that use the
S&P GSCI as an investment benchmark or guide.
Many of the big users may have learned of the change days or
weeks earlier in private meetings, says David Hemming,
commodities portfolio manager at Hermes Fund Managers.
"Most managers would have been either in the index committee
meetings or seen the notes from those. It was almost exactly a
month ago," he said. "I doubt there would have been any trading
off the back of that until that aspect had been cleared up."
But the news was not known to the wider market, which
reacted overnight and into Tuesday, even though the new weights
do not take effect until the first part of January.
The original, erroneous news release came out on Monday at
around 5:30 p.m. EST, when U.S. oil futures markets are closed.
But after S&P published the corrected version, two hours
later, the spread between Brent crude and WTI widened by more
than $1 a barrel in just 30 minutes. By late on Tuesday, the
spread was up 50 cents on the day at $22.58 a barrel.
"For sure, the index change adds to support for the
Brent/WTI spread," said John Kilduff, partner at Again Capital
LLC in New York.
Hemming said most investors would also have anticipated a
shift in favor of Brent, which has seen significantly higher
trading volume relative to WTI due to a growing preference among
some energy companies to use the European benchmark. The GSCI
takes into account futures trading liquidity when it allocates
weights between similar types of commodities, such as oil.
He said the bigger surprise came last month when the UBS-Dow
Jones index - also now owned by S&P Dow Jones Indices - decided
to include Kansas City wheat and Chicago soybean meal in its
index, taking it to 22 commodities.
Some faulted S&P more for failing to move the GSCI index -
created decades ago by Goldman Sachs and later sold to
Standard & Poor's - faster in favor of Brent. That said, the
GSCI still has by far the largest weighting toward Brent. The
DJ-UBS, for comparison, has only 5.8 percent Brent weight.
Jeremy Charlesworth, chief investment officer at Moonraker
Fund Management, said big investors would not have been fooled.
"Most managers would have thought: They've got that wrong!"