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French Oil Company Total Says Agency's Method Manipulates Benchmark Pricing

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Total's complaint against Platts resembles allegations about Libor.

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IOSCO released the letter, dated Aug. 24, as part of a report ordered up two years ago by the Group of 20 nations in an investigation of whether the currently unregulated market, which governs hundreds of billions of dollars in trades every day, needs tighter supervision. As a group, the pricing agencies have recommended a voluntary "code" of conduct.

Platts denies the accusations. In an emailed comment, the company said, "Platts does not conduct price estimates, but rather assessments based on concrete market data including bids, offers and transactions. The assessments are reflective of the values prevailing at the close of the trading day and individual companies may experience varying prices at different times due to normal market volatility."

The statement went on: "Our assessment criteria are reflective of standard commercial practices and engagement with all market sectors including producers, traders, refiners and consumers. Platts is committed to publishing price assessments that reflect true market value and our price assessments are underpinned by highly structured methodologies aimed at ensuring the integrity of the assessment processes and the price assessments those processes produce." Platts said its full remarks about the IOSCO report are posted here.

But Platts' system is problematic because it surveys prices in only a narrow window of time, said Jamie Webster, head of market intelligence for PFC Energy, a Washington-based energy consultant firm. "This was always a risk in my mind as you could trade all day in one way and then change your behavior during the pricing window, potentially leading to skewed assessments," Webster told me in an email. "This is counter to Argus methodology, which uses a longer period for assessment."

Total's accusations underscore the advantage of the scoring of prices in a publicly traded system, said Phil Flynn, an analyst with the PRICE Futures Group. He suggested that even if the price of physical oil can affect futures, the system of public trades ultimately helps to protect the integrity of prices. "That's why you really see the importance of futures markets," Flynn said. "When buyers and sellers with money on the line trade that is how you get your best price discovery."

This story by Steve LeVine originally appeared on Quartz.

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