European authorities have raided offices of oil majors Shell, BP and Statoil in an investigation of suspected manipulation of oil prices, one of the biggest cross-border actions since the Libor-rigging scandal.
Authorities have sharpened scrutiny of financial benchmarks worldwide since they levied large fines on some of the world's biggest banks for rigging interest rate benchmarks.
On Tuesday, the European Commission said it was investigating major oil companies over suspected anti-competitive agreements related to submissions to leading oil-pricing agency Platts, a unit of McGraw-Hill Group.
"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 said. The inspections took place in two European Union member states and one non-EU country, it said.
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"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," it said.
The commission also said companies may have prevented others from participating in the price-assessment process with the intent to distort published prices.
Statoil said the suspected violations were related to Platts' price-assessment process and may have been ongoing since 2002.
The probe will shine a light on the methodology designed by Platts for daily assessments on the physical oil markets, used to close deals worth billions of dollars.
The so-called Platts window, or market-on-close (MOC) system, is a daily half-hour period in which it determines cash prices through a series of bids, offers and trades.
Critics say the system is only a snapshot of the market because it excludes trade outside the window—one reason it's vulnerable to manipulation.
"I remember looking at these sorts of issues 10 years ago, and nothing has changed. It's sort of an accident waiting to happen," said Craig Pirrong, finance professor at the University of Houston. After the Libor scandal, price-assessment agencies were under "incredible scrutiny," he added.
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"Regulators and law enforcement officials are quite upset with this sort of alleged conduct, and they have proven that they are willing to go after companies that misreport for very large sums of money," Pirrong said. "Potentially the exposure is quite large."
Price Distortions
The commission said that even small distortions of assessed prices may have a huge impact on the purchase and sale price of crude oil, refined oil products and biofuels, potentially harming consumers.
Inspections' being carried out does not mean the companies were guilty of anti-competitive behavior, it pointed out. The commission did not make clear whether it was investigating a specific incident. These investigations typically take years to draw final conclusions.
Platts, Royal Dutch Shell, BP and Statoil said they were cooperating with the probe.
French major Total said no inspections had been conducted at its offices. The commission did not list the companies being investigated, and it was not clear whether others were included.
Statoil said authorities had inspected its office in Stavanger at the request of the European Commission on suspicions of anti-competitive behavior. The Norwegian state, the controlling shareholder of Statoil, would say only that the inquiry was a matter for the company's management to handle.
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Platts said the European Commission had "undertaken a review at its premises in London this morning in relation to the Platts price assessment process."
The International Organization of Securities Commissions (IOSCO) is running a wider review of benchmarks, and the U.S. Commodity Futures Trading Commission is looking into the setting of gold and silver prices in London.
IOSCO said it was not involved in the oil inquiry, and the CFTC declined to comment.
Thomson Reuters, parent of Reuters news, competes with Platts in providing news and information to the oil market.