Europe probes energy pricing
The European Union’s executive arm, the EU Commission, last week said it had raided the offices of a number of oil industry companies for possible price fixing.
Here are some questions and answers on the investigation.
Q: Which companies were raided and why?
A: The EU Commission did not say which companies it is investigating. However, Britain’s BP, Royal Dutch Shell, which is listed in London and Amsterdam, and Norway’s Statoil say they are part of the probe. Platts, a division of McGraw Hill Financial that compiles and provides data and news for the energy market, also said its offices in London were raided.
The three oil companies are all major producers in the international energy industry and contribute data to Platts’ Market on Close, or MOC, pricing process, which every day publishes the final trading price for numerous commodities.
The EU said it has concerns that some companies may have tried to manipulate the pricing process by colluding to report distorted prices and by preventing others from submitting their own prices.
Q: What prices are suspected of being rigged?
A: The commission has not specified which contracts are being investigated. It said, however, that its probe covers a wide range of oil products — crude oil, biofuels and refined oil products, which include gasoline, heating oil, petrochemicals and others.
Q: What role do price reporting agencies like Platts play in setting the market prices?
A: Every day, Platts compiles the bid, offer and transaction prices for trades in oil products. The information is voluntarily provided by oil companies, traders, large consumers like airlines or utilities, and other market participants.
Unlike oil futures, which set prices for contracts, the data used in the MOC process is based on the physical sale and purchase of shipments of oil and oil products.
After gathering the information, Platts editors analyze the data and estimate a price for each oil product at the end of each trading day. That information is used by other companies as a benchmark when they sell their products in the open market.
Q: How long do authorities think prices have been rigged?
A: According to Statoil, the EU investigation stretches back to 2002, which is when Platts launched its MOC price system in Europe.
Q: Does this mean gas prices at the pump were inflated?
A: The EU Commission says that is possible. It said that “even small distortions of assessed prices may have a huge impact” on the price of commodities like gasoline, which “could potentially harm final consumers.” But oil prices are affected by many factors that influence traders’ willingness to buy oil. The extent to which an oil product price can be manipulated through the MOC process is relatively small.