Hot on the heels of the LIBOR scandal (or Lie-bor, as some call it), comes news that the price of oil may not be truthfully set either.
The G20 organisation which represents the 20 largest economies in the world (the UK is currently ranked at No. 7) asked the International Organization of Securities Commissions (IOSCO) to look into the oil reporting market. The initial report says the current system of oil price reporting is "susceptible to manipulation or distortion."
Traders at a number of banks (those nice people that got so creative with the LIBOR rate) report the prices they pay for oil contracts to a few specialist agencies, primarily Platts or Argus. IOSCO said that "this creates opportunity for a trader to submit a partial picture, i.e. an incomplete set of its trades in order to influence the assessment to the trader's advantage." Surely not.
Platts - the biggest player in the market - insists that the competition between it and Argus as Independent Price Reporting Organisations (IPROs) provides "critical distinctions" from Libor which is regulated by a single body, the British Bankers' Association.
Platts says the data is based on "bids and offers that are tested in the marketplace." However, IOSCO is concerned that there are insufficient safeguards to prevent collusion between banks as is currently suspected in the Libor scandal.
Coincidentally, The Economist published a big investigation into one area of the oil trading market back in May, and said it suspected, but could not conclusively prove, manipulation of the oil price. It certainly had enough data to demonstrate some very odd goings-on. However, it should be said that, for once, the oil companies themselves are not under suspicion: they are more likely to be the victims than the perpetrators.
If the price of petrol and diesel really has been manipulated, should we be angry or sad? If we can't trust the price of money or oil, are all commodities subject to price fixing?