On Tuesday (European time), the European Commission (EC) conducted dawn raids on BP, Royal Dutch Shell and Norwegian oil and gas companyStatoil over allegations of anticompetitive conduct in the oil and biofuel sectors that may have been ongoing since 2002. The London offices of Platts, the world’s leading price reporting agency owned by McGraw-Hill, have also been raided.
The EC’s statement indicates that its investigation focussed on concerns that several companies active in and providing services to the crude oil, refined oil products and biofuels sectors may have:1
- colluded in reporting distorted prices to a Price Reporting Agency to manipulate the published prices for a number of oil and biofuel products; and
- prevented others from participating in the price assessment process, with a view to distorting published prices.
If established, these actions may amount to violations of the prohibitions in European competition law on cartels and restrictive business practices and abuses of a dominant market position.
Statoil’s press release on Tuesday shed further light on the nature of the EC’s investigation. It stated that the suspected violations, which may have been on-going since 2002, were related to the Platts’ Market-On-Close (MOC) price assessment process, used to report prices in particular for crude oil, refined oil products and biofuels.2
The Financial Times has reported that the five largest independent oil traders and the largest investment banks which trade oil are not part of the investigation. (However, as the EC’s investigation continues, other companies may be subject to dawn raids or, as in the case of ENI of Italy, be the recipient of an information request from the EC.)
Since the EC’s and other regulators' recent investigations into the manipulation of Libor and other interbank rates, models of reporting prices to a price-reporting agency (which then publishes data which rely on these prices) have been under scrutiny. The common link between this investigation and the investigations into the Libor and other interbank rates is the magnified impact that even very small distortions to pricing may be alleged to have.
In this more recent investigation, the EC is concerned that even small distortions of assessed prices may have a huge impact on the prices of crude oil, refined oil products and biofuels purchases and sales, potentially harming final consumers. This is because the prices assessed and published by Price Reporting Agencies serve as benchmarks for trade in the physical and financial derivative markets for a number of commodity products in Europe and globally. In particular, since Platts’ assessments may represent as much as 95% of crude oil trades and as much as 90% of oil products and over-the-counter derivative deals,3 the alleged ultimate impact of any such distorted prices could be significant.
These investigations will likely place a wide range of index-based price setting mechanisms under increased regulatory scrutiny, with potential ramifications across a broad range of industries.