(EU) Investigation Into Oil Industry Price Rigging Mirrors LIBOR Scandal (updated)

[ProSense]

Investigation Into Oil Industry Price Rigging Mirrors LIBOR Scandal

By Alan Pyke

The European Union is investigating price-rigging in the global oil market, a widely-known yet unaddressed problem. That investigation hit a peak with last Tuesday’s raids of British Petroleum, Royal Dutch Shell, and Statoil offices. By the end of the week, Sen. Ron Wyden (D-OR) asked the U.S. Justice Department to undertake its own investigation into the effects on U.S. consumers.

Day-to-day oil transaction prices are based on benchmarks set by private firms, and the EU investigation focuses on the firm Platts, whose oil price benchmarks are “the most influential,” according to CNN Money. By manipulating individual transations late in a given day, traders can tweak the next day’s benchmark to increase their profits on other deals.

This looks to be very similar to last year’s massive, under-covered LIBOR scandal, in which megabanks colluded to gear a supposedly market-driven interest rate toward their own interests. CNN Money explains the shared pitfalls of basing daily price-setting on voluntarily-provided, unaudited data from the biggest players in the two industries:

“(T)hey are both widely used benchmarks that are compiled by private organizations and that are subject to minimal regulation and oversight by regulatory authorities,” the review, led by former financial regulator Martin Wheatley, said in August . “To that extent they are also likely to be vulnerable to similar issues with regards to the motivation and opportunity for manipulation and distortion.” <…>

There are also concerns about the fact that reporting to Platts is done by traders voluntarily. In a report issued in October, the International Organization of Securities Commissions — an association of regulators — said the ability “to selectively report data on a voluntary basis creates an opportunity for manipulating the commodity market data” submitted to Platts and its competitors.

LIBOR manipulation impacts $800 trillion in assets globally. Similarly, oil prices are a core driver of the price of nearly every consumer good, especially food. LIBOR manipulation helped force massive cuts to public services in American cities by blowing up the balance sheets of those cities, and the apparent manipulation of oil prices is likely to have a similarly long and destructive reach.

- more -

http://thinkprogress.org/economy/2013/05/20/2036101/investigation-into-oil-industry-price-rigging-mirrors-libor-scandal/

Updated to add:

Oil company offices raided in EU pricing probe

The offices of several firms involved in the oil market have been raided by European Commission officials.

The commission...did not name the firms, and said the raids did not mean the companies were guilty...BP, Royal Dutch Shell, Norway's Statoil and the pricing agency Platts confirmed that they were working with the authorities in their inquiries.

<...>

"Even small distortions of assessed prices may have a huge impact on the prices of crude oil, refined oil products and biofuels purchases and sales, potentially harming final consumers,'" the Commission said.

As part of the investigation, the Commission said it was examining whether the companies may have prevented others from participating in the pricing process "with a view to distorting published prices".

<...>

Statoil, which confirmed its Norwegian headquarters had been inspected, said the suspected violations "related to the Platts' Market-On-Close (MOC) price assessment process" and "may have been on-going since 2002".

- more -

http://www.bbc.co.uk/news/business-22530379

[Arctic Dave]

1. They are just now looking into this?

Blind people could see the market was being rigged.

[ProSense]

2. See the update, even more shocking. n/t

[ProSense]

3. Kick! n/t