The announcement is a blow for the storied Japanese trading house, which invests in everything from salmon to natural gas and trades many commodities around the world.
It is the first loss of its kind in Mitsubishi's history, a company spokesman told Reuters.
It may be the biggest loss in the market from oil trading since China's Sinopec Corp said last year it lost about $700 million on crude hedging.
A PDS employee who handles crude oil trades for China "was discovered to have been repeatedly engaging in unauthorized derivatives transactions and disguising them to look like hedge transactions since January of this year," Mitsubishi said in a statement.
While PDS has closed the positions, "we are now examining the total amount of losses," Mitsubishi said.
A PDS representative in Singapore said it could not comment beyond the statement from Mitsubishi.
Mitsubishi has a reputation as a careful trader and only reported its first group annual loss in 2016, when commodities markets slumped. It was founded in 1954.
"It's a bit surprising (because) in the Japanese houses there are a lot of checks and double-checks but I'm not sure what automated compliance systems there are, or if they have any," said one long-time trader in the Asian market.
Oil prices have been volatile this year. Prices had fallen sharply from a peak in April above $75 a barrel, and then they shot up nearly 20% this week after an attack on Saudi Arabian oil facilities.