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Page added on May 16, 2013
Everything Is Rigged, Continued: European Commission Raids Oil Companies in Price-Fixing Probe
We’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 . . .
15 Comments on "Everything Is Rigged, Continued: European Commission Raids Oil Companies in Price-Fixing Probe"
J-Gav on Thu, 16th May 2013 1:36 pm
Another solid contribution from Taibbi although why these facts should surprise anyone today is beyond me – it’s been obvious for years, just a question of filling in details here. So, yep, all these years of mouthing about the virtues of the “free market” have been just that – hypocritical and criminal nonsense meant to draw the suckers into the game … I think it was Vanderbilt who said at the beginning of the 20th century: “Competition? Free markets? I hate competition and free markets.” If anybody thinks capitalism has fundamentally changed since …
Arthur on Thu, 16th May 2013 1:44 pm
The European Commission represents the collective European national governments, that impose something like 70% tax on fuel, making it ca. twice as expensive as in the US. They have the power and want to do the robbery all by themselves and don’t like competition in this field. 😉
Kenz300 on Thu, 16th May 2013 2:11 pm
Quote — “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”
———————–
The problem is related to the fact that oil has a monopoly on transportation fuels. We need more competition and a choice at the pump.
Ending Our Oil Addiction: Yossie Hollander at TEDxChapmanU – YouTube
http://www.youtube.com/watch?v=iKEtQ_zz4GA
BillT on Thu, 16th May 2013 3:16 pm
Yawn… wake me when these guys are in jail. Otherwise, it is all eyewash to make you think they are doing something about the corruption in government and business today.
GregT on Thu, 16th May 2013 5:35 pm
Maybe we will need to bail out the too big to fail oil companies next.
DC on Thu, 16th May 2013 5:58 pm
Arther, why again are high taxes on fossil-fuel bad exactly? Many of us here feel govt’s, especially in N.A. give the oil companies a free ride by barely taxing oil at all. Its certainly true. I want high taxes on gas, 1.30 a litre here is simply high enough to modiy peoples behavior, and the oil companies in my country, which are basically US and Euro oil corporations anyhow(IE same people mentioned above mostly) still manage to rig the market even within N.A.s paltry tax regimes.
Hey Kenz, competition is not magic ok? The only true competition between transportation is subsidized for-profit energy cartels, vs publicly owned mass electric transit, trains, and bike infrastructure. But guess what Ken? The corporations virtually eliminated all competition to ‘their’ business model decades ago. So your ‘idea’ that ‘alternatives’ like a NG, bio-fool or H2 pump next to the gas ones at your local 7-11 will somehow magically make all our problems go away, is frankly absurd.
Repeat after me Kenz, competition is NOT magic.
Arthur on Thu, 16th May 2013 6:00 pm
“Maybe we will need to bail out the too big to fail oil companies next.”
They are drowning in cash.
Arthur on Thu, 16th May 2013 6:02 pm
“Arther, why again are high taxes on fossil-fuel bad exactly?”
I am not complaining, just joking about the government, call it a libertarian streak. High taxes on fuel are OK, in this case, for a change.
Plantagenet on Thu, 16th May 2013 6:09 pm
The main cause of high fuel prices in the EU are taxes.
If the EU is really concerned about the effect of high gas prices on consumers, they could start by trying to reduce fuel taxes on consumers. The problem with high fuel taxes in the EU is that it stifles economic growth, as shown by the last 6 years of recession and depression in the EU.
Ed on Thu, 16th May 2013 7:19 pm
The recession in the EU has nothing to do with high fuel taxes. A lot of industry is exempt from fuel taxes, in any case, like aviation and farming.
bobinget on Thu, 16th May 2013 8:11 pm
Price fixing aside, have you ever wondered how the EU economy functions with such high fuel costs?
Turkey, not wealthy nation diesel is over $9. per US gallon.
http://www.bloomberg.com/slideshow/2013-02-13/highest-cheapest-gas-prices-by-country.html
This is like that questionnaire one gets at the doctor’s office.
All those maladies one is NOT suffering..
In the US we have it so easy.
Maybe gasoline taxes are so high because most folks skip out on federal income taxes.
Arthur on Thu, 16th May 2013 8:30 pm
“If the EU is really concerned about the effect of high gas prices on consumers, they could start by trying to reduce fuel taxes on consumers. The problem with high fuel taxes in the EU is that it stifles economic growth, as shown by the last 6 years of recession and depression in the EU.”
We do not need economic growth, we are already rich enough as it is!! We need to allocate resources to renew the energy base and that is what we are doing. And high fuel prices speed up that process of renewal, exactly what we need.
BillT on Fri, 17th May 2013 1:27 am
Keep up the dreams and ignore the facts, Arthur. “Europe is awash in cash”, that is why they needed a few trillion from the US to keep the banks solvent. Yep! The sun always shines on the EU…lol.
DC on Fri, 17th May 2013 4:44 am
True enough, growth in the past has not managed to ‘fix’ any of our problems. If anyting, growth is simply making them worse. Super high taxes on the most destructive of activities, IE fossil-fuels, at least is the right idea. Although high taxes have not put a serious dent in the the car-death-making-machine overall, the idea itself is a sound one.
Compare nations with high gas taxes vs those that do not. Present difficulties aside, the cheap gas regimes, US, Canada, Australia, mostly the anglo countries, are in very bad shape physically and fiscally, with crumbling infrastructure and public services almost across the board. The high FF tax nations, OToH, are generally doing fairly well all things considered. So the idea that high taxes on FF are bad for the ‘economy’ is a shaky one at best. Both Europe and Asia have better technology and services than N.A. by a substantial margin.
Arthur on Fri, 17th May 2013 6:58 am
Bill, you missed I was talking about the oil companies drowning in cash, not Europe.