Pain at the pump may be a universal emotion shared by drivers on either side of the Atlantic, but only one side of the “pond” is conducting an unprecedented regulatory operation to uncover potentially illegal activity that has kept gas prices so high.
European regulators have launched an aggressive investigation into ”serious” allegations of price rigging by some of the globe’s biggest oil companies and the top oil market trading agency. Motorists in continental Europe and Britain have long voiced complaints over disparities in retail gasoline prices from the wholesale values set by traders and oil companies.
The inquest took a dramatic turn earlier this month when corporate offices of Shell, BP, Statoil and the world’s top oil pricing firm were raided by investigators with the European Commission under suspicion that the companies involved “colluded” to artificially inflate prices for crude oil and other products. Regulators now suspect the price-fixing may have been carried out for as many as 11 years before government officials were finally tipped off.
Some have called the idea of a decade-long oil rigging scheme as big as the “LIBOR” scandal that rocked financial markets last year, when banks and traders spent years tinkering with the benchmark rate for charging rates of interest.
The London offices of BP and Shell have been raided by European regulators investigating allegations they have “colluded” to rig oil prices for more than a decade.
The European commission said its officers carried out “unannounced inspections” at several oil companies in London, the Netherlands and Norway to investigate claims they may have “colluded in reporting distorted prices to a price reporting agency [PRA] to manipulate the published prices for a number of oil and biofuel products”.
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 European authorities declined to name any of the companies raided but BP, Shell, Norway’s Statoil and Platts, the world’s leading oil price reporting agency, all confirmed they are being investigated.
In a statement Shell said: “We can confirm that Shell companies are currently assisting the European commission in an inquiry into trading activities.”
BP said: “BP is one of the companies that is subject to an investigation that was announced by the European commission. We are co-operating fully with the investigation and unable to comment further at this time.”
Statoil, which is 67%-owned by the Norwegian government, said: “The authorities suspect participation by several companies, including Statoil, in anti-competitive agreements and/or concerted practices contrary to Article 53 of the European Economic Area (EEA) [market manipulation].
“The suspected violations are 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, and may have been ongoing since 2002.”
What is unclear for now is how much of an impact the alleged European rigging has had or will have on global oil markets and prices paid by American consumers. With world markets increasingly interconnected and fluctuations of any kind in one part of the globe instantly analyzed by traders and industries all over the planet, the ramifications of the probe could be far-reaching.
The fact that the globe’s leading oil market price assessment firm has been directly targeted in the investigation and the similarity of the potential oil fixing scheme to recently uncovered operations in the United States and elsewhere leads Matt Taibbi to argue that the story rates as “hugely significant” for Americans, too.
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.
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.
While the fixing scandal is relegated to Europe for now, there is little question that similar motivations exist in the United States for oil companies to manipulate and artificially enhance market prices to improve their bottom line.
Gas prices are already beginning to soar for the summer in the US, jumping from what were seasonal highs to begin with and now approach or break price records in many locations. Oil insiders warn of higher prices after Memorial Day despite the record-setting boom in American oil production and the expansion of global supplies due to the flow of US crude.
While analysts and consumer advocates repeatedly question the causes behind the unwavering upward trend in prices at the pump, government regulators in the United States have done virtually nothing to uncover any truth to allegations of rigged markets or unfair pricing practices.
Incentive for oil companies to keep crude and pump prices consistently elevated is obvious to many experts, with one congressional report detailing how high gas prices reap a “windfall” of profits for oil giants like Exxon, Shell and BP.
At least one lawmaker has taken notice of the European investigation and is calling for a US-based inquiry into the oil markets and attempts by the industry to universally rig prices.
Vermont Sen. Bernie Sanders has proposed legislation to force federal regulators to mirror the price-fixing operations in Europe and begin a similar investigation in the United States, as well as use the government to crack down on oil speculation that is also fingered as a leading cause of high gas prices.
Sanders said a full accounting of oil markets is necessary to root out “fraud, manipulation, abuse and excessive speculation.”
With gasoline prices rising rapidly, Sen. Bernie Sanders (I-Vt.) today proposed an amendment to make U.S. federal regulators follow the lead of Europeans and investigate oil and fuel price manipulation.
Sanders also proposed a 30-day deadline for the Commodity Futures Trading Commission to use its emergency powers to curb excessive speculation in crude oil markets.
“We must do everything that we can to make sure that oil and gasoline prices are transparent and free from fraud, manipulation, abuse and excessive speculation,” said Sanders, a member of the Senate energy committee.
Over the past five months, the national average price for a gallon of gasoline has gone up by more than 41 cents. The price hikes come at a time when U.S. oil inventories reached a three-decade high while demand for gasoline is lower than four years ago when prices averaged less than $2.30 a gallon.
“The skyrocketing cost of gasoline and oil is causing tremendous hardship to the American consumer, small businesses, truckers, airlines and fuel dealers. In fact, as we struggle to claw our way out of this terrible recession, high oil and gas prices are enormously detrimental to the entire economic recovery process,” Sanders said.