In the wake of the Barclays’ Libor scandal–with internal memos now hinting that the scandal will envelop other banks–some politicians and fuel campaigners are urging regulators to expand its investigations to determine whether oil prices have also been pushed up.
Concerns around the reliability of oil prices–reinvigorated by the huge spike in gas prices earlier this year–continue to grow after a recent G20 report “found the market is wide open to ‘manipulation and distortion.’” Oil retailers use “benchmarks” to determine the price for future supplies. The benchmark rate is calculated by data companies (Platts & Argus) based on submissions from banks, hedge funds, energy companies, and others who trade oil daily. Similar to Libor, the integrity of this process depends on the honesty of firms to submit accurate data–firms that have an interest in manipulating prices.
The report, published last month by the International Organisation of Securities Commissions (IOSCO), noted that whole market is voluntary–that is, banks can choose which trades to make public–meaning “traders have opportunities to influence oil prices for their own profit.”
IOSCO says this “creates opportunity for a trader to submit a partial picture in order to influence the [price] to the trader’s advantage”.
In an earlier report, the regulator concluded: “It is open to companies to report only those deals that are in their own best interests for the rest of the market to see.”
Platts and Argus argue that they are well aware of these possibilities, and that they employ journalists to weed out bad data.
Paul Tucker, the Bank of England’s deputy governor, told MPs that Barclays’ abuse of the Libor system may be only one part of the banks’ dishonesty over crucial financial information.
The growing concern is not limited to the UK:
Further alarm bells are being sounded by US regulators, who have already pointed out the rate-rigging scandal could spread to the oil market.
Scott O’Malia, a top official at the US Commodities Futures Commission, has drawn attention to the “striking similarity” between the potential for manipulating oil and Libor.
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