The European Commission, Europe’s leading anti-monopoly authority, has raided the offices of BP, Shell, Norway’s Statoil and Platts, the commodity-price reporting agency. It is investigating whether the companies colluded to fix the price of oil benchmarks, such as Brent crude, which in turn affects the price of refined oil products, such as petrol. “Even small distortions” of prices can have a “huge impact” on crude and refined oil prices, said the Commission.
What the commentators said
When it comes to petroleum-benchmark pricing, “everybody is sceptical”, said Fadel Gheit of Oppenheimer & Co. Indeed, one of Europe’s biggest energy trading groups, Total Oil Trading, told international regulators last year that “several times a year” prices didn’t feel right: “estimates of market prices on key [energy] indices… are out of line with our experience of the day”.
The basic problem is that oil’s price-reporting mechanism resembles the process that led to the scandal over the Libor interest rate. Platts and other reporting agencies, essentially the price setters for the physical market, come up with a price they think is representative for the day by polling traders in the market.
Critics have long maintained that the figures “can be imprecise and open to manipulation because prices are disclosed voluntarily by firms buying and selling in the same market”, noted Dan Strumpf on WSJ.com.
This potential scandal would have wider ramifications than Libor, as Alex Brummer pointed out in the Daily Mail. “Discovering who was actually hurt” by the Libor affair “proved complex”. With oil, the “consumer interest” in terms of pump prices or manufacturing costs is much easier to gauge. Big Oil could soon be in big trouble.