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Long-time Brent traders say crude market is fixed

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Long-time Brent traders say crude market is fixed

The global oil market is fixed, according to four long-term participants of the crude markets. The traders, who have not yet been identified by name, claim the world’s biggest oil companies are directly involved in manipulating Brent Crude prices. North Sea Brent is the benchmark used by investors to price most of the world’s crude supply.

The four traders filed a class action law suit October 4 in Manhattan, New York. They claim oil companies and energy-trading organizations submitted false information to energy price publisher Platts, helping to mislead the markets. Platts claims to provide “Independent energy news and the latest energy prices” for the commodities exchange. Platts is owned by McGraw Hill Financial, and oversees the global Brent markets.

The case follows several other lawsuits emanating from the United States claiming price fixing is a reality in the global crude market. However, the case brought forth by the four traders looks to be the most detailed account of price manipulation, laying out a potential roadmap for market regulators. Some of the companies implicated in price fixing include Royal Dutch Shell, British Petroleum and Statoil ASA, who allegedly worked alongside Morgan Stanley and other oil investors to manipulate prices in the global crude markets for more than a decade.

The plaintiffs brought forth their claim in a document exceeding 85 pages, where they outlined Platts’ dubious methodology, as well as the “spoofing” tactics used by the defendants. Spoofing is a form of market manipulation in which traders place orders with the intention of cancelling them sometime down the road. The court filings allege the world’s largest oil players monopolized the crude market and “entered into an unlawful combination, agreement and conspiracy to fix and restrain trade” in Brent crude. The plaintiffs claim the price of Brent spot was artificially driven by the major oil players.

“It’s a very obscure market,” said David Kovel, the plaintiffs’ lawyer. “To outsiders, it can seem impenetrable. Specialists and specialty traders in the markets can take advantage of this obscurity.”

The traders made their case several months after the European Commission launched its own investigation into price rigging in the oil markets. The EC raided some of the world’s largest oil companies to gather evidence of possible price rigging. Royal Dutch Shell, British Petroleum and Statoil ASA were among the companies raided. Clearly, the companies implicated by the plaintiffs have been under the microscope for some time, and have garnered attention from regulators concerned with price manipulation.

According to an EC statement back in May, “The commission has concerns that the companies may have colluded in reporting distorted prices to a price-reporting agency to manipulate the published prices for a number of oil and biofuel products.” The EC said one of its primary concerns is large oil players preventing other market participants from being part of the price assessment process.

The EC report followed several complaints from Oil Trading SA, the Swiss branch of one of the world’s largest oil companies, Total of France. Oil Trading SA made several complaints that energy prices are “out of line” with everyday experience. A few months later, the European Union agreed on a formal approach to harmonize sanctions for breaching financial market rules, including those governing the commodities market.

The global commodity markets are worth $5.7 trillion each year. If the plaintiffs’ claims are true, the crude markets could witness another probe into price-fixing. Commodities are one of the less transparent markets in global trading, and continue to be a chief concern for regulators.

Regulators have yet to charge anyone with price-fixing, and the European Union has yet to announce the findings of its investigation.

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