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Oil price agency Platts too powerful, regulator told
April 5, 2012 / 4:37 PM / 6 years ago

Oil price agency Platts too powerful, regulator told

* Platts “arguably” has too much power-Consilience

* Suggests expert panel, overseen by IOSCO, be formed

* Oil commentator Vergeler says no need for regulation

* Platts says it does not control markets, defends assessments

By Alex Lawler and Richard Mably

LONDON, April 5 (Reuters) - Oil price assessment service Platts, which is owned by McGraw-Hill, has too much power in physical oil markets, a well-known industry consultant told a global financial regulatory group.

The International Organisation of Securities Commissions (IOSCO) is considering increasing oversight of oil price reporting agencies (PRAs), whose prices are used to settle billions of dollars of deals in physical oil, the world’s biggest traded commodity.

IOSCO, whose members regulate more than 95 percent of the world’s securities markets, said in March oil price reporting might be regulated in an attempt to prevent market manipulation and increase transparency. It asked for responses by March 30.

In a 16-page response, Liz Bossley, chief executive of Consulting firm Consilience Energy Advisory Group Ltd., referred in particular to Platts, as well as its rivals ICIS and privately held Argus Media.

She said that while the three organisations set high standards for themselves and by and large uphold them, problems lie in the scope rather than the quality of their work.

“Platts, arguably, has too much power for a PRA and is using that power to determine the contractual framework in which trades take place, rather than simply reporting trades,” she wrote.

“Platts only has this power because the industry has let it fill the vacuum left by the absence of an industry forum where contractual housekeeping matters can be discussed openly.”

Bossley cited a Platts decision to change in the way it calculated its price for North Sea dated Brent, a global benchmark, with effect from January 2012, despite a proposal from Royal Dutch Shell to delay the changes until 2013.

She suggested that an expert panel, subject to IOSCO oversight, be set up to deal with contractual housekeeping matters in the oil market.

Platts, asked to comment for this story, said its “robust and structured” price assessment process brought transparency and integrity to the market, a process it uses to publish price assessments that reflect “true market value”.

“Platts does not control markets, lead them or determine market behavior. The use of Platts’ prices for physical transactions is at the sole discretion of the buyer and seller,” Platts said in a statement.

‘NONEXISTENT PROBLEM’

Another response to IOSCO by Philip Verleger, a veteran oil market commentator, praised Platts and Argus price reports for their high quality and argued against the need for regulation of PRAs.

“Quite simply, IOSCO seeks to cure a nonexistent problem,” Verleger wrote in an eight-page response.

“IOSCO fails to understand that aggressive reporting by two or more PRAs has incentivized each PRA to better its data accuracy,” he said. “In sum, the PRAs publish price assessments of the highest quality.”

IOSCO is looking at the role of PRAs following a request last year by the Group of 20 (G20) top economies, under pressure to curb speculation blamed for huge swings in oil markets.

Price assessments for over-the-counter oil trade and derivatives produced by industry reporters are used to settle billions of dollars worth of deals and to help settle trade on benchmark futures exchanges.

Journalists at reporting agencies assess prices by asking as many traders as possible where they see the market.

That process has evolved over time, and Platts and Argus publish their methodologies on assessing prices.

In some markets, such as the North Sea market which sets the price of dated Brent, many of the day’s deals are done in a 30-minute period known as the “window,” aimed at increasing transparency.

Even so, many physical and derivatives deals are done bilaterally and are not captured by the window process, making some corners of the market relatively opaque.

Thomson Reuters, the parent of Reuters News, competes with Platts and Argus in providing news and information to the oil markets.

Our Standards:The Thomson Reuters Trust Principles.
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