Politicians and fuel groups are urging the Government to embark on an investigation, similar to banking’s Libor scandal, into price fixing in the fuel sector. There’s a growing suspicion that motorists are paying too much for petrol due to traders manipulating the price for oil in the same way that the banking sector controlled interest rates.
A report for G20, the group of finance ministers and central bank governors from 20 major global economies, found the oil market open to ‘manipulation or distortion’. Indeed, the report found that oil companies have a clear incentive to distort the market and report false prices.
Robert Halfon who is leading a growing group of MPs in calling for control over fuel prices commented:
“We need to know whether the oil price has been manipulated in a similar way to Libor. This impacts on millions of people all round the country concerned about the price of petrol at the pumps.”
Former Lib Dem Treasury spokesman, Lord Oakeshott, added:
“Clearly it’s right we must shine a light on how other crucial benchmark prices are reported, especially when they affect the cost of living for millions of motorist,”
Petrol retailers use benchmark to set their costs. These benchmarks are how much they are expected to pay for future supplies. The rate of future supplies is calculated every day by banks, hedge funds and energy companies. However, the market is unregulated, relying on the honesty of the parties involved, a position which raise concerns in the G20 report.
Former commodities trader and author of the book ‘Oil and Finance’, Raymond Learsey, suggest manipulation of the oil market is nothing new:
“Given how important Libor is, if that can be manipulated, then why can’t oil be manipulated? The price lends itself to manipulation. The oil price is not a true reflection of supply and demand.”
However, oil price reporting agencies Platts and Argus disagree over comparisons with Libor:
“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.”
The debate continues.