Manipulation probe draws attention to trading desks
LONDON: Europe’s energy price manipulation probe has turned regulatory attention to secretive trading units at oil companies with huge turnover and millionaire staff with risk appetite higher than at Wall Street’s biggest banks. Regulators have scrutinized banks, trading houses and commodities markets more closely following the Libor benchmark rigging scandal but trading desks at oil majors have largely escaped attention. Although banks and trading houses have expanded rapidly in energy over the past decades, oil companies still often dwarf them in size, geographical reach, profits and sometimes the magnitude of scandals surrounding their operations.
An EU investigation into the suspected manipulation of the price of crude oil, refined products and ethanol has thrown them into the spotlight. “Political pressure for regulatory action and stricter oversight of both traders and price reporting agencies will ramp up,” said Roderick Bruce, energy analyst at IHS think-tank. EU investigators raided offices of BP, Shell and Statoil, trading house Argos Energy and pricing agency Platts last week as part of the case. It was the biggest crossborder action by the regulators since the Libor scandal.
Despite massive disclosure obligations by publiclylisted oil firms, simple metrics such as revenue and profit at their trading divisions are not public. There is also pressure from shareholders for the companies to provide more transparency. “Obviously you can’t talk about the size of the positions that the companies are taking, but in terms of the impact that trading has on profitability, it should be evident because that helps to explain the underlying profitability of the company,” said Charles Whall, who helps co-manage $1.08 billion at Investec Global Energy Fund, including shares in Shell.
The world’s biggest trading houses including Glencore , Vitol, Gunvor, Trafigura and Mercuria, long perceived as the most secretive firms in oil trading, have all started releasing detailed financial data in recent years to tap bond and equity markets. By contrast, oil majors like BP, Shell, Statoil, Total and Eni disclose very little. For example, BP, one of the biggest and most powerful trading desk in the industry, last disclosed figures for trading in 2005 when it earned $2.97 billion, or over a tenth of the group’s overall net profit. —Reuters