EU oil price probe puts Platts in spotlight

Wed May 15, 2013 5:55pm EDT
 
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By Peg Mackey and Alex Lawler

LONDON (Reuters) - A European investigation into alleged price rigging by major oil companies has drawn attention to leading price agency Platts and the way it sets oil price benchmarks.

Authorities on Tuesday carried out a surprise inspection at Platts' London bureau as well as the offices of Royal Dutch Shell (RDSa.L: Quote), BP (BP.L: Quote) and Statoil (STL.OL: Quote). Officials were searching for evidence that the firms had distorted prices reported to Platts in an attempt to influence the cost of oil.

The move follows more scrutiny of financial benchmarks by authorities since the Libor rigging scandal. Statoil said the suspected violations were related to the Platts price assessment process and may have been going on since 2002, when oil traded at just $20 a barrel, a fifth of its price today.

For more than a century Platts, a unit of McGraw-Hill MHFI.N, has provided clients with price benchmarks set by reporters for opaque energy markets. As the undisputed lead price reporter, its assessments are used to close physical and derivative deals worth billions in a $2.5 trillion market.

"Platts is the main price reference for the physical oil market," said Olivier Jakob, oil consultant at Petromatrix in Zug, Switzerland. "So if you were to close Platts tomorrow, you would have a very big problem."

Now the methodology designed by Platts to assess the value of oil is under scrutiny. One question may be whether the so-called Platts "window" or market-on-close (MOC) system - a daily half-hour period in which it determines prices through a series of bids, offers and trades - amounts to selective disclosure.

Platts' smaller rivals in the price reporting business - ICIS, a unit of Reed Elsevier (REL.L: Quote) and privately-held Argus Media - do not use a window-based process to assess prices. Argus said it has received no recent inquiries from European regulators. ICIS could not immediately be reached.

"The MOC process has faced criticism because it concentrates price discovery in a small assessment time window, perhaps making it more prone to potential manipulation," said IHS Energy analyst Roderick Bruce.   Continued...