Motorists may have been paying too much for petrol because traders are likely to have tried controlling oil prices in a Libor-style manipulation, an official report has warned.
The document, commissioned by the G20 group of the world’s largest economies, puts the reliability of oil prices under the spotlight after finding that the market is wide open to “manipulation or distortion”.
The oil market relies on firms to submit precise figures each day, a similar method to Libor inter-bank lending.
But according to the International Organization of Securities Commissions (IOSCO), who compiled the report, traders from banks, oil companies or hedge funds have an “incentive” to distort the market with phoney prices to enhance their trade.
The two systems certainly have one thing in common: both Libor and spot oil prices are, to all intents and purposes, unregulated – instead based on a system of trust.
Traders voluntarily submit the prices they pay for oil contracts to price reporting agencies such as Platts, Argus and others, who then set the benchmark price.
The IOSCO said “this creates opportunity for a trader to submit a partial picture, i.e. an incomplete set of its trades in order to influence the assessment to the trader’s advantage.”
Platts and Argus said they employ journalists to check for inconsistencies in the data, but the IOSCO said this method relies on the “experience and training” of reporters to judge what oil prices should be.
However, in a joint statement, Platts and Argus said: “Independent price reporting organisations 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. Independent price reporting organisations are not market participants, nor providers of transaction execution, clearing or settlement services.”
In a letter to IOSCO, Simon Lewis, chief executive of the Global Financial Markets suggested price reporting agencies may not be as independent as they claim to be, because they receive fees from banks and oil companies to provide information.
He said: “Incentives may arise to favour those who pay greater subscriber fees or provide greater access to market information.”
Lord Oakeshott, former Liberal Democrat Treasury spokesman, said the oil price system should be investigated.
“We must shine a light on how other crucial benchmark prices are reported, especially when they affect the cost of living for millions of motorists,” he said.
Brian Madderson, chairman of the Petrol Retailers’ Association, said: “If IOSCO thinks the price is open to manipulation it could well be and that would affect prices on the forecourts.”
Infographic: Breaking down the cost of UK fuel