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Oil Price-Fixing Probe Widens as Neste Helps EU Inquiry

May 17, 2013

Oil Price-Fixing Probe Widens as Neste Helps EU Inquiry

Platts publishes benchmark prices that are used to determine the costs refiners pay for crude oil and distributors pay for diesel fuel and gasoline. Photographer: Joe Raedle/Getty Images

The European oil price-fixing probe expanded as Neste Oil Oyj (NES1V), Finland’s only refiner, said it was asked to provide information regarding potential manipulation of global crude and biofuel markets.

The widening investigation comes as Pannonia Ethanol, a Hungarian biofuel producer, said it lodged a complaint with the European Commission last year after data-pricing company Platts denied requests to contribute to its price-setting process. Meanwhile, Statoil ASA (STL), one of the European oil companies that has been ensnared in the investigation, said it has “zero tolerance” for breaches of rules.

Royal Dutch Shell Plc (RDSA), BP Plc (BP/) and Statoil, three of Europe’s biggest oil explorers, are being investigated by European Commission officials about potential manipulation of prices in the $3.4 trillion-a-year global crude market. Platts, owned by McGraw Hill Financial Inc. (MHFI:US), also is a target in the inquiry. The probe, which extends to undisclosed crude-derived products and biofuels, shows how some energy markets lack the transparency of stocks and U.S. corporate bonds.

“It’s likely that this will metastasize,” said Craig Pirrong, director of the University of Houston’s Global Energy Management Institute. “A lot will depend on what happens when they start looking through e-mails, texts and IMs, because these companies are talking to other market participants and the circle could widen relatively quickly.”

Not Target

Neste, based in Espoo, Finland, said yesterday it’s not a target of the investigation and will cooperate with the request for information. Argos Energies is also a part of the investigation, Marketing Director Jan Dirks said today.

Eni SpA (ENI), Italy’s largest oil company, has received a request for information but isn’t under investigation, a spokeswoman said.

Neste fell 0.8 percent to 12.33 euros today in Helsinki. Shell rose 1 percent to 2,230 pence in London, while BP gained 0.9 percent to 469.95 pence. Statoil dropped 1.2 percent to 129.3 kroner in Oslo.

Other companies involved in the probe are likely to have received formal notification from the European Commission, Andy Lipow, president of Lipow Oil Associates LLC in Houston, said in a phone interview yesterday.

The investigation may involve “a significant amount of people who’ve received notice and just simply haven’t acknowledged it publicly,” Lipow said.

Pannonia said it sought access for more than a year to trade ethanol products on Platts’s daily half-hour window during which price benchmarks are set for different fuels on the basis of participants’ bids and offers. Even after complying with all requests for information, Pannonia said it was rejected.

Pannonia Complaint

“After being repeatedly turned down by Platts, the company lodged a complaint late last year with the European Commission solely and specifically about access to Platts for trading ethanol products,” Mark Brennock, a spokesman for the Dunafoldvar, Hungary-based company, said in an e-mailed statement.

Platts said it followed an established process with Pannonia.

“To produce benchmarks of the highest quality, Platts engages in a thorough vetting process by which interested participants must demonstrate that they can meet the requirements of our published methodology,” said Kathleen Tanzy, a New York-based spokeswoman.

Statoil Chief Executive Officer Helge Lund said the company doesn’t tolerate violations of European Union laws.

“We invest a huge amount of time in training our people to follow all the applicable rules and regulations in safety, in anti-corruption, in anti-competition and so on,” Lund said at a conference in Brussels yesterday.

‘Very Surprised’

Total (FP) SA Chairman and CEO Christophe de Margerie told reporters today he would be “very surprised” if the investigation found price fixing. “The system isn’t perfect but that doesn’t mean there’s price fixing.”

Platts publishes benchmark prices that are used to determine the costs refiners pay for crude oil and distributors pay for diesel fuel and gasoline. Traders report transactions to Platts. Those deals, rather than a complete record of all trades, are used to determine the price.

Total, Europe’s third-biggest oil company, has estimated that as much as 80 percent of all crude and oil product transactions are linked to reference prices such as those published by Platts, while as much as 20 percent are linked to exchange-traded futures on the New York Mercantile Exchange and ICE Futures Europe.

Setting Benchmark

Platts prices are used for as much as 95 percent of crude transactions, 90 percent of oil products and OTC derivative transactions, according to Total’s estimates.

“This could be huge,” Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said by phone yesterday. “If this involved one company, then maybe people would think it’s only one market they’re investigating. Now you’re bringing another company in and this could be big. At this point, we don’t know what and how many commodities they’re looking into.”

Platts’s North Sea Dated Brent benchmark sets the price of half the world’s crude, from Canada to Australia. Its kerosene assessments are used by the airline industry, where fuel accounts for about a third of operating costs, according to the International Air Transport Association. In the biofuels markets, the company assesses the price of ethanol and biodiesel as well as ethyl tert-butyl ether, an oxygenate gasoline additive that’s used in the production of the motor fuel.

Where Next?

The influence of price reporting agencies stretches beyond crude and oil products. The assessments published by Platts and its competitors, including Argus Media Ltd. and Reed Business Information’s ICIS, are used to price the raw materials used in everything from plastic bags to car parts in the $2.2 trillion global base-chemical industry as well as coal, power, metals, emissions, liquefied natural gas and shipping rates.

“I don’t think anybody should feel complacent,” Pirrong said. “Anyone who participates in the process should be wondering where they’re going next.”

Bloomberg LP, the parent of Bloomberg News, competes with Platts and other companies in providing energy markets news and information.

To contact the reporters on this story: Edward Klump in Houston at eklump@bloomberg.net; Asjylyn Loder in New York at aloder@bloomberg.net; Lynn Doan in San Francisco at ldoan6@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net


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