Following on the Libor and Euribor interest rate fixing scandals, the European Commission (EC, the executive arm of the EU) has just on Tuesday this week raided the offices of major energy companies BP and Royal Dutch Shell over allegations of price-fixing. The offices of StatOil in Norway, not an EU member, were also subject to "unannounced inspections" there.
Price-fixing in this sector could inflate not only the price of gasoline at the pump and airline tickets but anything made from petroleum derivatives. These include such common materials used in everyday consumer products as plastics and wax.
The concern is that the companies "may have colluded in reporting distorted prices" to Platts, arguably the leading oil pricing agency, and "prevented others from participating in the price assessment process", causing a "distorti[on of] published prices." Unlike trades on the New York Stock Exchange, for example, a complete record of all transactions is not made available. Rather, Platts publishes benchmarks upon which refiners and distributors rely for pricing their purchases.
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Part of the problem is that participation in the reporting is voluntary, and traders are not required to report all their trades. This means that selective reporting can be strategized to their own benefit. And some commodities are not reported every day. Collusion in price reporting would represent a violation of various European antitrust rules prohibiting restrictive business practices and abuse of dominant market position.
StatOil offered the comment that what is involved is the Platts market-on-close assessment, which reports prices for various crude and refined oil products, including biofuel. EU officials quickly clarified that such inspections are not an accusation of malfeasance but rather a regular, preliminary step in any investigation. Indeed, they are the sort of inspections carried out by EU officials in the European offices of the Russian company Gazprom in September 2011 over other, different concerns about anti-competitive behavior.
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In Gazprom's case, the questions are also about pricing, but rather long-term than short-term market pricing. What is concerned here is the long-term contracts between Gazprom and the companies that it supplies, in particular the inequitable linking of natural gas and oil pricing, as well as contract conditions hindering the energy trade among the EU members and their diversification of energy supply. After the winter cut-offs of natural gas supplies to Europe by Russia in January 2006 and January 2009, the EU's Third Energy Package mandates that member-states should diversify their suppliers.
According to reports, it is not excluded that potential violations by BP, Shell, and StatOil may have begun over a decade ago, in 2002. Companies that have been found in violation of the EU's competition rules may be subject to fines as large as 10 per cent of their annual revenue.
By. Robert M Cutler