May 24, 2013 at 3:13 pm #1644
How European oil price fixing works and might expand to a U.S. probe
By Examiner – Eadith Allen May 18, 2013
The European Union (EU) oil price-fixing probe appears to be widening and may trigger action by the U.S. Justice Department. The investigation into possible oil price manipulation started with several big players like Royal Dutch Shell and BP. Some are concerned that alleged price fixing in the EU might have affected U.S. oil prices. This complicated matter started when Hungary’s Pannonia Ethanol became one of the first companies to complain about access to the Platts market-on-close (MOC) system. MOC trading is a series of bids, offers and trades that goes on during the last half hour of the trading day. Platts determines oil prices after that period. According to a May 17 Washington Post article, the Justice Department was asked to get involved in the EU investigation. The chairman of the Senate energy committee knows how the world’s markets are connected and he wants to find out if any price manipulation has caused higher fuel prices for U.S. consumers.
So far, the European Union has raided the London bureau of pricing agency Platts and the offices of Statoil, Royal Dutch Shell and BP. Argos Energies, a mid-sized company that trades in physical oil products and owns storage facilities is the latest firm to be investigated.
Sen. Ron Wyden (D-Ore.), chairs the Senate Energy and Natural Resources Committee. He said, “Efforts to manipulate the European oil indices, if proven, may have already impacted U.S. consumers and businesses, because of the interrelationships among world oil markets and hedging practices.”
How does he London Interbank Rate (libor) become a part of the investigation? Authorities were investigating other major financial benchmarks like interest rates that are set by the world’s largest banks. That investigation led to the libor scandal, which was the biggest price-fixing scheme in history. Observers detected and noted a resemblance between libor and the complicated journalist assessments that are used to set most of the world’s oil prices. Both libor and the MOC system are subject to minimal regulation and oversight by regulatory authorities.
Wall Street banks and libor also relate to the alleged oil price-fixing because the banks are also major players in the world’s energy markets.
Platts is a unit of McGraw-Hill. It is the most influential of the “independent price-reporting agencies.” Platts makes assessments that are used to close deals for physical oil and oil derivatives that are worth billions in an overall $2.5 trillion market.
A May 17 CNN Money article calls the price-reporting process a complex one, but traders know that the most important transactions occur late in the day. This is where the Platts MOC system does its magic. There may be few transactions at that time, but traders and reporters can manipulate the market by playing with the numbers during that time. Another problem is that reporters can selectively report data on a voluntary basis. They could manipulate commodity market data they submit to Platts and its competitors.
Without accurate representations of the market, the real price levels that are paid at every level of the price chain, including by the consumer, can be “deformed.” Even a small distortion can have large results, and those results can end up costing more at American gas pumps.
May 24, 2013 at 5:11 pm #4472
Here is update on EU price fixing by 3 majors BP/Shell/Statoil using the Platts MOC system to rig oil (Brent) & product prices. Good example of how using low level analysts & programs to establish prices can be manipulated by traders & experts that actually understand the market. Platts may take major hit but if they are looking at Argus to pick up some of its share market – they are only changing names & not gaining any more expertise.
US has few of same problems as the EU high price of Index Crude (Brent), high price of gas ($7-9/gal) and collapse of EU refining sector/closing plants due lack of complexity/expensive emission cost/competition from cheap Govt exporters who subsidize fuels and EU has about 60-80% price gas tied up as taxes which was reason prices didn’t always change dramatically with cost of goods/services (COGS). But our crude index (WTI) has been $8-25/bbl below Brent due glut/lack infrastructure, and US gas is only $3-4/gal (ranks ~56 out top 60 global price list) and taxes are “only 25-40%” of gas price (visible 12-17% at pump). But once fixers get away free gain they will try it anywhere besides whiners always want oil company to be “boogey man” gouging them due greed (only partly correct – stupidity on impact environmental regulations, permit blockage, NIMBY “someone else pay for it”).
Keep eyes on US East & West Coast where EU template is being followed & Refining US is collapsing/closing fastest.
FYI Some other versions :
EU Prime Minster David Cameron @ NY http://www.guardian.co.uk/business/2013/may/16/oil-price-fixing-criminal
EU probes Oil Co/Platts Price Fixing http://news.yahoo.com/eu-probes-oil-companies-possible-170537240.html
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