Guest Post: European Commission Investigates Oil Majors For Oil Price Manipulation

Tyler Durden's picture

Submitted by Joao Peixe via OilPrice.com,

After the Libor rigging scandal in 2012, authorities have sharpened their act, deeply scrutinizing company financial records, and implementing stricter regulations. This has led to a new investigation which has led European authorities to raid the offices of Shell, BP, and Statoil, in what is suspected to be one of the largest international actions since Libor.

The European Commission admitted that it carried out surprise raids on the offices, two in EU member states, and one in a non-EU country, as part of an investigation into the oil majors over allegations of anti-competitive agreements, which led to oil price manipulation.

The Commission stated that “officials carried out unannounced inspections at the premises of several companies active in and providing services to the crude oil, refined oil products and biofuels sectors.

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.”

Statoil has claimed that the entire misunderstanding is related to the Platts price assessment process. Each day during a half-hour period known as the Platts window, the oil pricing agency determines the cash prices by analysing bids, offers, and trades. The system has taken criticism before, through claims that the half hour only gives a very small snapshot of the market, and that the exclusion of trades outside of the time period make the system vulnerable to manipulation.

Platts, Statoil, Shell, and BP have agreed to cooperate with the investigation.

More from The FT (explaining the price-setting mechanism)...

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Neethgie's picture

The eu commission are commies seriously raiding the office of a non member state company? On what grounds, they are actively destroying sovereign Europe state by state, what bp are accused of could be settled by its own regulators

Silver Bug's picture

Every major market is currently being manipulated to some degree. They will eventually lose their control over this manipulation.

 

http://jamesturkblog.blogspot.ca/

Xibalba's picture

not before people are shot in the streets

ZerOhead's picture

They will probably have to settle with a small fine and no admission of guilt... these oil guys are known to be some very slippery dudes.

Oil-pricing agency Platts is also under investigation. Platts, a unit of McGraw Hill Financial Inc., is the custodian of the Brent crude contract, the de facto world benchmark for oil prices and base for the hundreds of billions of dollars of futures contracts that trade off it. Crude oil prices in turn influence the price of gasoline and other fuels.

SafelyGraze's picture

ot: "the sound of money being made"

http://www.youtube.com/watch?v=VTLSLR0-YuU&t=670s

spoiler: boom boom boom boom boom boom boobooboom boom

frankly, it's a lot simpler (and safer!) to just print the stuff.

or to electronically generate it.

Mine Bitcoins, Not Metals!

Harlequin001's picture

'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'...

Not like the Fed and the BoE then. Wouldn't want them to get done for fixing prices would we...

Thank god for regulators eh...

Urban Redneck's picture

Haven't they (or someone else) been digging into Platts reporting mechanism for ages now? 

Zodiac's picture

Platts is a unit of McGraw-Hill, and so is another information service provider with the same business model and ethics that you can get anything, it's just a matter of how much you pay us for it; that other unit is rating agency S&P.

LetThemEatRand's picture

"The eu commission are commies seriously raiding the office of a non member state company? On what grounds"

Oligarchs fighting each other.  On what grounds do the oil majors extract tax dollars to continue their monopoly of energy via international occupation of oil rich countries?  I don't care if the snake wins or the alligator wins.  Fuck them both.

thisandthat's picture

Terrible, and the worst is they did it unannounced - unbelievable! What's this world coming to...

Go Tribe's picture

Oil manipulation????

What about the stock market?

sitenine's picture

Investigation: The act of officially destroying a company or individual that isn't 'playing along'.

thisandthat's picture

I know, right? Just imagine - someone investigating the Fed, COMEX, MF Global, GS, JPM, etc., etc... unthinkable - on what grounds, exactly? Commies, all commies, I say - that's all they are...

ekm's picture

Do you want me to repeat for the Nth time that price of oil has been liborized it's been 13 years?

 

Normal price is $40-50. Liborized prices is the one now

Spitzer's picture

I worked for Stat Oil in Canada those fuckers. They got charged for diverting water in Alberta. (not that I cared that they did that)

 

They are not happy unless they are spending money. They spend like money is nothing. We were told money is not an issue ever.

ekm's picture

Tell us about their "costs".

Is it $70/barrel? Really? 

 

How about $30.

Spitzer's picture

I don't know. The way they do business just never made sense to me.

otto skorzeny's picture

My fav story today on CNBC was the Saudis should be concerned about "US energy independence"- give me a fucking break.

ekm's picture

US produces 7.5million b/d and consumes 19 million b/day

 

CNBC is the Pravda of finance.

otto skorzeny's picture

The only thing CNBC is independent from is reality.

LetThemEatRand's picture

They are independent from those who don't like oligarchs.  CNBC is owned by GE, one of the biggest crony capitalists in the world.  Status quo is the rule when the status quo allows you to rule.

ekm's picture

GE is practically a state owned enterprise, not different from chinese SOEs.

LetThemEatRand's picture

The state is practically a GE owned enterprise.  Except for the practically part.

greyghost's picture

once the well has paid for itself....what is cost of oil?????

CrashisOptimistic's picture

The operating costs, but wells drilled now decline in output so rapidly from their initial days that those operating costs can exceed revenue and get the well plugged faster than you would think.

So what is the cost of oil if you have to pay $500,000 to pour concrete into a hole 2 miles long and get no oil out to pay for that expense?

JustObserving's picture

While you are at it, please take a look at gold and silver price manipulation.

Fuku Ben's picture

This will be killed faster than the JPM Silver price fixing investigation

Harlequin001's picture

I thought that one was pretty quick wasn't it? It only took them what, 4 years, or was it 5...

and still found nothing...

LeisureSmith's picture

Maybe this is just them taking one for the team, picking up the tab for some project. Funding disguised as a large fine? Whatever this is about, stories will get straightened out at the annual confab next month in England. 

MrBoompi's picture

Oil companies manipulating the prices of products sold to consumers? Now that's a shocker!

The_Alchemist's picture

There's an even more significant fact that deepens this great energy scandal.
The big three "fosil fuels" are obsolete!
http://www.youtube.com/watch?v=8TAmiUnBTyI
Replication 1: http://www.youtube.com/watch?v=-WsKOdxLIJU

Replication 2: http://www.youtube.com/watch?v=4nnvley2N4g

knukles's picture

Is the price fixed, is there collusion and manipulation?
Tell me something that the price is not fixed, set, subsidized, floored, controlled, managed, regulated or fucked with in some way.

Even the prediden'z net worth is fixed.

 

Oh, and has absolutely nothing to do with government regulation and oversight, either, does it?

John Sixpack's picture

Jus make sho my ebt card and my obumma phone is fixed

Westcoastliberal's picture

The price should be no higher than $35 BBL resulting in gasoline at about $1.85 a gallon.  We've been getting brutally fucked since "W". As I recall when he took office gas was about $1.65.

tmosley's picture

How does I understood inflations?

Harlequin001's picture

We've printed a lot of new money since then....

pragmatic hobo's picture

uhm, gee ... shocked, I tell you, shocked.

Downtoolong's picture

They're talking about the physical market equivalent of what the big banks do every day in the oil futures markets.

The greatest abuses are in the relatively illiquid products and delivery locations. A few outlier trades can radically move the Platts high/low range and midpoint which many long term contracts are based on. I once brokered deals in the fuel oil markets (ships bunkers). There were a few delivery locations that were notorious for off market deliveries to ships that could lower the price of a monthly supply contract delivery by as much as $40 per ton. The mechanism for the scam is usually more about volume than price. Think of it like a gas station filling up one car at a discount of $1 per gallon which then sets a lower price for an entire tank truck delivery to the station that day.

Welcome to the dark side of index pricing.   

Telemakhos's picture

The price of a commodity might not reflect optimal price discovery but rather the machinations of interested parties? Color me surprised. I'm sure swift enforcement actions, of which these raids are the spearhead, will remedy the situation, develop a fair mechanism for price discovery that's immune to manipulation, and restore a truly free and efficient market without participants' cheating on the one hand or overbearing regulatory interference on the other. That'll happen right after Europe's debt crises are all finally solved for good and there's a hovercar in every driveway.

Whether there's manipulation of the Platts price is one question; another question is why the EU is launching these raids now.  The Europeans tolerate massive corruption almost as well as the Americans, and it's hard to imagine that price manipulation is new, so why investigate now?  Is there substantial fear that a price shock from energy inputs could further wreck damaged or fragile EU economies (i.e. Greece)?  Is this tied into wider concerns about the companies supplying data (McGraw Hill owns Platts and Standard & Poors, which ("oh, my bad") downgraded France by mistake two months early in November, 2011)?  Or is the EU just such a random and arbitrary organization that it's just now getting around to investigating something that may have been going on since 2002?

thisandthat's picture

Probably some whistleblower, or someone got caught redhanded on something and spilled the beans with some hard evidence.

EverythingFubar's picture

The main raids are on BP, Shell and Platts here in the UK. One theory is that this is a PR move to counter the massive anti-EU sentiment that is growing daily. If the EU can be seen to be doing good things for us here in Britain, it looks like there is value in being in the EU. Petrol prices are a very big deal here for Joe Public. Our prices are much higher thant the US. Of course most of it is Government tax but hey ho..

 

Sandmann's picture

Not so. They don't move so quickly and the EU is more popular in the Uk than in France according to Pew. Stop being a narcissist.

Germany flagged up collusion a year ago and has been looking at coordinated price increases on Thursdays. These issues were discussed at the G20 and the ConAgra scam pushing prices to $147/bbl shows how easily manipulated the oil price is. Natural gas prices in EU are tied to Oil prices as are animal feed prices. It is a major cause of sluggish growth.

However, watch oil prices climb now that the Israelis are set on confrontation with Russia

http://debka.com/article/22970/Syrian-Israeli-war-of-words-via-Putin-edg...

lolmao500's picture

Here's another scandal for ya...

http://www.thegatewaypundit.com/2013/05/breaking-holder-justice-departme...

Breaking: Holder Justice Department Also Tapped House of Representatives Cloak Room

HH: The idea that this might be a Geithner-Axelrod plan, and by that, the sort of intimation, Henry II style, will no one rid me of this turbulent priest, will no one rid me of these turbulent Tea Parties, that might have just been a hint, a shift of an eyebrow, a change in the tone of voice. That’s going to take a long time to get to. I don’t trust the Department of Justice on this. Do you, Congressman Nunes?

DN: No, I absolutely do not, especially after this wiretapping incident, essentially, of the House of Representative. I don’t think people are focusing on the right thing when they talk about going after the AP reporters. The big problem that I see is that they actually tapped right where I’m sitting right now, the Cloak Room.

HH: Wait a minute, this is news to me.

DN: The Cloak Room in the House of Representatives.

HH: I have no idea what you’re talking about.

DN: So when they went after the AP reporters, right? Went after all of their phone records, they went after the phone records, including right up here in the House Gallery, right up from where I’m sitting right now. So you have a real separation of powers issue that did this really rise to the level that you would have to get phone records that would, that would most likely include members of Congress, because as you know…

HH: Wow.

The cloakrooms serve as a place for members to socialize, eat, and take naps without leaving the building. These rooms are closed to all except for Senators and Representatives, and a few of their trusted staffers, and even have their own phone numbers.

grimey's picture

The purpose of the crude price manipulation is to shift profits from refineries, which are typically  located in politically stable countries with low risk of nationalization but higher tax rates, to exploration in countries that are typically low tax and corrupt. I suspect the EU decided the tax revenues to be gleaned by repatriating those future refining profits outweighed the potential cost of scaring commodity traders into fleeing to Switzerland and Houston and other similar criminal sanctuaries. I'm taking $70/bbl as being pretty likely and expect a move down in crude over the next few weeks as the accused spit polish their cowlicks and play like choirboys while they're being watched, and positioning accordingly. 

Urban Redneck's picture

1/3 of the world's paper oil already flows through Geneva, if they let any more paper oil in they're going to have to allow some more immigration to help with the paper pushing, because it's a really small and specialized group of guys that's responsible for the current volume. 

Sandmann's picture

Cut credit lines to speculators and impose a bear squeeze

CrashisOptimistic's picture

So you build a 30 story tall structure, in segments, ship them to a coastline, assemble them at sea, then install a 50,000 or whatever horsepower marine engine on it, helicopter a crew out, drive the rig 5000 miles to an offshore drill site, drill, find no oil, do the same thing again 3 more times and find some oil on the 4th drilling.

And all this is a cost of $35/barrel?

Poor Grogman's picture

All that worrying about cost is for the sheeple.

It is the global financial ponzi that needs oil, and what the system needs the system gets.

You don't think that with all that ability to manipulate everything, the
PTB would just sit quietly by and watch their system die???

That would be asking for the sheeple to become restless no?