Matt Taibbi. (photo: Current TV)
Everything Is Rigged, Continued: Oil Companies Raided
By Matt Taibbi, Rolling Stone - 17 May 2013
e're going to get into this more at a later date, but there was some interesting late-breaking news yesterday.
According to numerous reports, the European Commission regulators yesterday raided the offices of oil companies
in London, the Netherlands and Norway as part of an investigation into
possible price-rigging in the oil markets. The targeted companies
include BP, Shell and the Norweigan company Statoil. The Guardian explains that officials believe that oil companies colluded to manipulate pricing data:
The commission said the alleged price collusion, which may have been going on since 2002, could have had a "huge impact" on the price of petrol at the pumps "potentially harming final consumers".
Lord Oakeshott, former Liberal Democrat Treasury spokesman, said the alleged rigging of oil prices was "as serious as rigging Libor" - which led to banks being fined hundreds of millions of pounds.
The inquiry also involves Platts, the world's largest
oil price reporting agency. The concept here is very similar to both the
LIBOR scandal, which involved banks manipulating the benchmark rates
for interest rates, and to the possible rigging of interest rate swap
prices through the manipulation of ISDAfix, the benchmark rate for those
instruments, which is also the subject of a regulatory probe.
We wrote about both of those scandals in last month's Rolling Stone article, "Everything is Rigged."
In that piece, finance professionals talked about the potential for
manipulation in other markets that involve voluntary price reporting:
What other markets out there carry the same potential for manipulation? The answer to that question is far from reassuring, because the potential is almost everywhere. From gold to gas to swaps to interest rates, prices all over the world are dependent upon little private cabals of cigar-chomping insiders we're forced to trust.
"In all the over-the-counter markets, you don't really have pricing except by a bunch of guys getting together," Masters notes glumly.
That includes the markets for gold (where prices are set by five banks in a Libor-ish teleconferencing process that, ironically, was created in part by N M Rothschild & Sons) and silver (whose price is set by just three banks), as well as benchmark rates in numerous other commodities - jet fuel, diesel, electric power, coal, you name it.
One analyst I spoke to for that piece talked
specifically about Platts (and another, similar price assessment
company), noting that they "do benchmarks for the entire oil market, the
entire refined products market" and "you name it" - any of these
benchmarks that rely on voluntary reporting could be manipulated.
Everything Is Rigged: The Biggest Financial Scandal Yet
It's not clear yet exactly what is alleged to have
occurred, but Europeans have long complained that retail gas prices have
not seemed to match wholesale prices. In fact, complaints that
wholesale prices at gas stations were noticeably slow to fall when
wholesale prices fell prompted the U.K.-based Office of Fair Trading
last year to conduct a cursory inquiry into possible anti-competitive behavior in the fuel markets. Early this year, they announced that they hadn't found enough evidence to warrant a full-blown investigation. But complaints persisted.
The story is obviously hugely significant in its own
right, just as the LIBOR story was. But both are even more unpleasant in
conjunction with each other, and the other price-fixing scandals that
have cropped up in the financial markets in the last year or two. We've
had other price-fixing scandals involving gas in the U.K. and here in the U.S., just a few weeks ago, it came out
that the Federal Energy Regulatory Commission (FERC) concluded that
JPMorgan Chase used "manipulative schemes" to tinker with energy prices
in Michigan and California.
FERC last year also recommended a massive $470 million
fine against Barclays for similar activity. (Barclays has vowed to
fight the penalty.) Deutsche Bank, meanwhile, settled with FERC for $1.7
million after the commission alleged that the German bank was involved
with manipulation in the California energy markets for several months
during 2010.
More on all this later . . .
