Three of Europe’s biggest oil explorers are among companies being questioned by European antitrust regulators about potential manipulation of prices in the $3.4 trillion-a-year global crude market.
Royal Dutch Shell Plc, BP Plc, Statoil ASA and Platts, the oil-price data collector owned by McGraw Hill Financial Inc., said they’re being investigated after the European Commission conducted raids in three countries to ferret out evidence of collusion. Price fixing in energy markets has the potential to inflate production costs and consumer prices for everything from gasoline to airline tickets to cosmetics.
The probe, which also extends to undisclosed crude-derived products and biofuels, marks the third time global pricing benchmarks have drawn the scrutiny of regulators in the past year. The U.S. Commodity Futures Trading Commission is investigating allegations that brokers manipulated ISDAFix, the benchmark for the $379 trillion swaps market, to inflate bank profits, Bloomberg reported April 8.
U.S. and U.K. regulators previously found that banks manipulated the London interbank offered rate, or Libor, that may have helped them generate profits from derivatives trades. Royal Bank of Scotland Group Plc, UBS AG, and Barclays Plc have been fined about $2.5 billion and other firms remain under investigation.
“It is certainly the case that Libor drew attention to financial benchmarks in general and the question of how these agencies report prices,” Timothy McIver, an antitrust lawyer at the London office of Debevoise & Plimpton LLP, said in an e- mailed statement. “This is obviously the latest in a series of such investigations.”
Statoil said the suspected violations relate to prices published by Platts.
Platts publishes energy benchmarks that are used throughout the world to determine prices refiners pay for crude oil and distributors pay for diesel fuel and gasoline. Traders report transactions to Platts, and the company uses those deals to determine the price. Inaccurate and incomplete information can skew those assessments.
“The commission has concerns that the companies may have colluded in reporting distorted prices to a price reporting agency to manipulate the published prices for a number of oil and biofuel products,” the executive arm of the EU said in its statement.
Platt’s parent, McGraw Hill, and its Standard & Poor’s credit rating unit were sued by the U.S. Justice Department in February. The complaint alleged the company knowingly downplayed the risks on bonds and derivatives to gain more business from the investment banks that issued them between 2004 and 2007, before the debt markets froze and helped cause the worst financial crisis since the Great Depression. The companies have denied committing any fraud.
Platts said in March it would introduce a quality premium for Ekofisk and Oseberg crudes, two of the four grades that make up the Dated Brent marker used to price more than half the world’s oil. The changes were designed boost trading liquidity and to take into account their superior quality over the other two grades, Forties and Brent, that make up Dated Brent, Platts said at the time. That came after Shell made adjustments to its trading contract for three blends including Brent.
Two other reporting agencies, Argus Media Ltd. and ICIS, joined Platts in publishing a self-regulatory code in April 2012 in response to concerns from the International Organization of Security Commissions that their prices were at risk of manipulation.
Price assessments could be vulnerable to manipulation because traders participate voluntarily, meaning they may selectively submit only trades that benefit their positions, according to an October report from Iosco, as the International Organization of Security Commissions is known. Total Oil Trading SA, an arm of the French oil company called Total SA, said in a submission to the forum of global regulators that the published oil price is wrong “several times a year.”
“The actual mechanism of price discovery is suspicious to EU regulators even though I believe it works,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said in an e- mailed response to questions. The probe “sets the precedent for similar investigations.”
Inspections were also carried out on the commission’s behalf by the EFTA Surveillance Authority in one European Economic Area member state, the Brussels-based commission said.
“The authorities suspect participation by several companies, including Statoil, in anti-competitive agreements and/or concerted practices,” Statoil said in a statement. “In addition, the inspection relates to potential abuse of possible dominant position by another party.”
The suspected violations are related to the Platts’ Market- On-Close price assessment process, used to report prices in particular for crude oil, refined oil products and biofuels, and may have been ongoing since 2002, Statoil said. Platts said the Commission undertook a review at its premises in London yesterday and that it’s cooperating.
“It’s a bit like the oil industry version of Libor,” said Iain Reid, an analyst at Jefferies Group LLC in London. “But I’d be very surprised if it comes to anything. I can’t imagine that Shell or Statoil would deliberately be trying to rig the market.”
Oil companies have been the subject of the EU’s antitrust watchdog before. In September 2006, it fined 14 companies 266.7 million euros ($346 million) for fixing the price of bitumen, a petroleum byproduct used to make asphalt, over eight years on the Dutch market. Shell, whose fine was increased for being a repeat offender, received the biggest penalty.
Next page: The Hammer
Price-fixing probes haven’t been confined to European markets. BP agreed to pay $303 million in October 2007 to settle U.S. Commodity Futures Trading Commission allegations relating to claims of market manipulation. In January 2009 a BP unit, Houston-based BP America Inc., agreed to pay $52 million to propane buyers who accused it of trying to monopolize the supply of gas flowing through a Texas pipeline.
In April 2012, Optiver Holding BV and three employees agreed to pay $14 million to settle market-manipulation allegations by U.S. regulators. The Dutch proprietary-trading firm used a high-frequency trading program called the “Hammer” in 2007 to affect the settlement prices of crude, heating oil and gasoline traded on the New York Mercantile Exchange. As part of the settlement, Optiver didn’t admit or deny wrongdoing.
Shell, Europe’s biggest oil company, said it’s “currently assisting” the commission in an inquiry into trading activities and that the company is cooperating, without giving further details.
“BP is one of the companies that is subject to an investigation that was announced earlier today by the European Commission,” BP spokesman Robert Wine said in an e-mail yesterday. “We are cooperating fully with the investigation and unable to comment further at this time.”
Total SA declined to comment and Eni SpA couldn’t immediately be reached.
Exxon Mobil Corp.’s European offices have not been visited by regulators in relation to the inquiry, said Alan Jeffers, a spokesman for the Irving, Texas-based company. Exxon has oil and gas wells from Ireland to the Black Sea, and also refines crude into fuels and operates chemical plants and filling stations across the continent.
Chevron Corp. wasn’t immediately able to comment, Kurt Glaubitz, a spokesman, said in a telephone interview. San Ramon, California-based Chevron, the world’s third-largest energy company by market value, operates oil and gas wells in the North Sea and is exploring shale formations in Poland, Romania, Lithuania and Bulgaria.
Other North American companies with operations in Europe that said they had not been contacted by investigators in the probe include Occidental Petroleum Corp., ConocoPhillips, Marathon Oil Corp. and Apache Corp. in the U.S., and Talisman Energy Inc. in Canada.