Total Raises Oil Price Reporting Agency Accuracy Concern

Total SA (FP), France’s largest oil company, said price reporting agencies need more regulatory oversight to maintain their accuracy and consistency while BP (BP/) Plc said the current process is satisfactory.

The comments, including one from state-run Saudi Arabian Oil Co. and a lobby group representing airlines, formed part of an investigation by the International Organization of Securities Commissions into the risk of manipulation of published prices of crude and oil products in the over-the-counter market.

“We encounter, several times a year, estimates of market prices on key indices that are out of line with our experience of the day and with the available information on which the price formation is based,” Totsa, the Geneva-based trading arm of Total, said in an Aug. 24 letter to IOSCO, which was later published on the organization’s website.

IOSCO was appointed by the Group of 20 nations in November to investigate the role played by price reporting agencies, or PRAs, in oil markets. The Madrid-based organization published its final report on its website on Oct. 5 that called for the agencies to adopt “robust” controls to protect the reliability of the benchmarks. IOSCO stopped short of recommending new rules for traders or trading companies.

Boxing Consequences

Total also said that excluding market participants from the assessment process, or “boxing,” by PRAs such as Platts, a unit of McGraw-Hill Cos. (MHP), can have “significant economic consequences both on the prices assessed in the market and on the company concerned.” Total also said accuracy was variable and subject to judgment calls.

The agencies, including Platts, Argus Media Ltd. and Reed Elsevier Plc (REL)’s ICIS unit report on various spot and forward prices that are not traded on exchanges and their assessments are used to price the majority of the world’s physically-traded oil.

BP, in its submission to IOSCO, said that it was important that the methodologies used by PRAs in setting prices were transparent and publicly available and that it is “unconvinced” of the need for external regulation.

The International Air Transport Association said PRAs shouldn’t be self regulated, citing the banking industry crisis as an example of the failure of that system. The association, whose membership includes airlines that consume jet fuel, said that a code of conduct for PRAs is necessary but insufficient on its own unless overseen by a regulator such as the U.K.’s Financial Services Authority.

Stakeholder Control

IATA recommended that a set of principles and controls for PRAs “should be set by a group consisting of experienced stakeholders such as traders, oil producers, refiners, government body and large end consumers.”

Platts said on Oct. 5 that many of the principles mentioned in IOSCO’s report are in line with the company’s current practices and were covered in the draft code that the agency issued in April, along with Argus and ICIS, in response to an earlier version of the regulatory body’s report.

Saudi Aramco, as the state oil exporter is known, said that PRAs “should not have any impact on the physical oil market as PRAs do not play a role of trading houses.” As such, PRAs do not need to be subject to the same level of financial regulation as companies that actually handle people’s money, Aramco said.

IOSCO brings together national market regulators from more than 100 countries, including the U.S. Commodity Futures Trading Commission and the U.K.’s FSA, to coordinate rules and share information.

Bloomberg LP, the parent of Bloomberg News, competes with Platts, Argus and ICIS in providing energy markets news and information.

To contact the reporter on this story: Rupert Rowling in London at rrowling@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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