Newspapers in the UK have been filled this week with reports that BP, Shell and Statoil are under investigation by the European Commission over suspected collusion to distort the price of oil. The UK Prime Minister suggested "extending criminal offences" to cover market manipulation (it is very difficult to see how executives could lawfully be prosecuted via any retrospective extension to criminal cartel offence, should it be necessary). But, the Office of Fair Trading reported only in January this year that competition was working well in the UK's petrol/diesel sector.
The OFT's investigation started with a "call for information" in September 2012. The call for information looked into issues such as: why is diesel much cheaper elsewhere in the EU; why do supermarkets charge different prices in forecourts across the UK, but the same price for groceries; and do prices rise quickly when the crude price increases but fall slowly when it decreases.
The OFT concluded that rises in the price of diesel and petrol in the UK over the last 10 years had been caused primarily by higher crude prices and tax and duty increases, not by lack of competition. It found no evidence of any anti-competitive behaviour in the fuel market.
The EU investigation, is focused on manipulation of the oil price benchmark. The European Commission's concerns are that oil companies may have colluded in reporting distorted prices to Platts, the price reporting agency, and prevented others from participating in then price assessment process, in order to manipulate the published prices for a number of oil and biofuel products. The prices reported by Platts serve as benchmarks for the physical and derivative trades of oil-related commodity products in Europe and globally.
The fact that the EU raids have been limited to three oil companies (and Platts) suggests that the investigation has been triggered by specific intelligence, probably from an insider. If benchmark input prices have been manipulated, all potentially affected parties (including businesses and motorists) could seek damages. There will almost certainly be claims in the offing already. This is on top of any financial penalties imposed by the EU.
Meanwhile the OFT is under pressure to explain why it concluded as it did in January. To be fair to the OFT, its investigation was focused on wholesale and retail supply issues, rather than the trading price benchmark. Collusion at the trading and price benchmarking end of the market is very difficult to uncover absent a whistleblower. For the OFT, it is unfortunate that a whistleblower did not come forward during its investigation.
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