BP AND SHELL ACCUSED OF PRICE FIXING: IS THE INTERNATIONAL COMMUNITY FINALLY COMING TO GRIPS WITH OIL SPECULATION?

 

The EU has opened a formal inquest into allegations of price fixing by oil giants BP and Shell. 

A long trend of almost predictable ups and downs in gasoline prices has raised more than a few eyebrows in the United States, where the uneven and unpredictable spikes are usually attributed to commodities market speculation.

These news however, should shed additional light into the artificially inflated prices that have plagued both Europe and the US for more than a decade. 

Traders too seem to be a piece of the inflated gas prices puzzle.  

The Commission believes that the oil companies have distorted prices to a price reporting agency in order to manipulate the published prices for oil products. 

These distortions have a huge impact in the final product, i.e., gas at the pump.  The price of oil that ends up in the tank of a car for example, is determined by a small number of 'benchmarks', valuation, among them Brent crude. 

If the price of crude is increased artificially even by a small amount, the ripple effect for the final product is much larger.  

The Commission suspects such activities following a series of announced inspections of the oil companies. 

The same commission also suspects that some oil companies are also excluding some other oil providers from the price assessment process, in order to distort published prices. 

Traders have a clear incentive in market distortions, because the reporting of such distorted prices can easily be accepted in a market that has since been almost completely de-regulated.  It is a market that works, essentially on the honor system of self guidance.  

Such heightened prices have a very large impact on world economies, especially at a time when many countries are suffering economic setbacks. 

The companies in fact are believed to be rigging their prices by declaring a higher price for the product than the actual sale price, to make it more valuable.  This is a technique that was used in the US by now defunct Enron.  

Other companies involved are believed to be Statoil of Norway and Platts reporting agency. Some observers believe that this scandal could widen to implicate many more worldwide oil providers and traders. 

Source : The Independent   5.14.13