Bigger than Libor

Oil price collusion would be a Libor-scale scandal

If the suspicions of European authorities are true, and oil traders conspired to rig published energy prices, global markets could be looking at a scandal bigger than Libor.

One thing is certain. The ongoing debate about the integrity of the energy benchmarks compiled by price-reporting agencies such as Platts, Argus and ICIS Heren has taken a dramatic turn with Tuesday's raids on the offices of Shell, BP and Statoil. So far there have been no allegations of wrongdoing. The companies say they are cooperating.

But the stakes are high. While the European Union investigators haven't said which energy benchmarks are at the centre of its probe, the prices compiled by Platts and its peers set the value of many billions of dollars of energy products traded globally. That's not the only parallel with Libor. There is also the potential for big fines. Companies that engage in anticompetitive behaviour can be hit for up to 10 per cent of turnover under EU competition rules. On the scale of a global oil producer, that's huge.

There are also important differences, however. The price reporting agencies that compile the inputs for benchmarks such as Brent crude have argued, with some force, that their systems are less susceptible to manipulation than the reporting process used by Libor-fixing banks.

For starters, multiple independent companies do the data gathering in energy markets; banks were effectively reporting Libor to themselves. Energy benchmarks are also compiled based on real data - bids, offers, and even completed transactions. Libor was based on estimates of interbank lending rates. That would almost make any conspiracy to fix published energy prices worse, if found true - it would take a concerted effort to bamboozle independent market observers to pull off. Even if no collusion is found, ongoing reviews into the integrity of the energy price-reporting process have taken on fresh urgency.