Oil price agencies claim rigging not possibleBy: CHRISTOPHER JOHNSON
LONDON – Oil price reporting agencies said the way they assess international spot oil prices is nothing like the method for calculating Libor, now at the centre of a scandal for having been rigged in the interests of some banks.
Platts, part of McGraw-Hill Inc, privately owned Argus Media and ICIS, a unit of Reed Elsevier, said in a joint statement they were independent organisations (IPROs) and their role was quite different from the activity of banks involved in setting the London Interbank Offered Rate (Libor).
There are “fundamental differences between the creation of Libor and the reporting and publishing of oil and energy market price assessments”, they said.
“IPROs are independent of and have no vested interest in the oil and energy markets. Their ownership is transparent, and strict internal governance separates editorial and commercial functions. IPROs are not market participants, nor providers of transaction execution, clearing or settlement services.”
Some financial industry bodies, including the International Organisation of Securities Commissions (IOSCO), have said they are worried that oil price assessments could be subject to pressure and may be at risk of manipulation.
Daily price assessments for over-the-counter (OTC) oil trade and derivatives are used to settle billions of dollars worth of deals and to help settle trade on benchmark futures exchanges.
Global financial regulators have discussed imposing new rules on physical oil markets, including the appointment of an industry watchdog and extra scrutiny of pricing methodology.
But a IOSCO report last month leaned towards a more modest set of record-keeping requirements for IPROs that largely enshrine existing practice.
VARIETY OF SOURCES
More than a dozen current and former employees of several large banks are under investigation, accused of trying to manipulate benchmark Libor interest rates, which underpin US$550 trillion in loans, securities and derivatives worldwide.
While Libor is the product of a single organisation, oil price assessments come from a variety of sources including the independent reporting organisations, the IPROs said.
“We have no vested interest in the markets,” they said.
Journalists at reporting agencies evaluate prices by contacting as many market participants as possible – by phone or via instant messaging – to ask their view of the market in order to avoid reflecting only a buyer’s or seller’s point of view.
It’s a process that has evolved over time, and Platts and Argus publish methodologies that spell out how they assess prices. But that has not satisfied some in the oil industry, who believe it is still easy to influence price discovery.
David Bicchetti, associate economic Officer at the United Nations trade and development agency, said the price-setting mechanism was similar to Libor in that it was based on self-reporting with no independent oversight.
“The failures of these self-reporting mechanisms illustrate the additional needs for more transparency on both markets,” he said. “It is a total myth to believe that self regulation could work without proper supervision.”
But the IPROs said their price assessments were done in a “transparent and consistent manner” and that methodology had evolved through “open consultation with stakeholders to ensure it remains robust”.
CONSUMERS’ HANDS TIED
Meanwhile, the South African Petroleum Retailers’ Association (Sapra) yesterday told Fin24 that there was very little that South Africans can do about reported oil price rigging and the possible effect it could have on motorists.
“As we are at the end of the value chain on crude prices and pay what is available in the market, there is very little we can do except to support a probe into these allegations,” said Peter Noke, national director Sapra. – Nampa-AP and Fin24.com