Traders accuse oil majors of decade-long manipulation of Brent crude prices

Four traders claim in a lawsuit they can prove some of the big players conspired to manipulate spot prices for Brent oil for more than a decade

PUBLISHED : Friday, 08 November, 2013, 1:58am
UPDATED : Friday, 08 November, 2013, 9:58am

Four long-time traders in the global oil market say in a lawsuit the prices for buying and selling crude are fixed - and that they can prove it.

Some of the world's biggest oil companies including BP, Statoil and Royal Dutch Shell conspired with Morgan Stanley and energy traders including Vitol to manipulate the closely watched spot prices for Brent crude oil for more than a decade, they allege.

The North Sea benchmark is used to price more than half the world's crude and helps determine where costs are headed for fuels including petrol and heating oil.

The case, which follows at least six other US lawsuits alleging Brent price-fixing, provides what appears to be the most detailed description yet of the alleged manipulations and lays out a possible road map for regulators investigating the matter.

The traders who brought it - who include a former director of the New York Mercantile Exchange (Nymex), one of the markets where contracts for future Brent deliveries are traded - allege they paid "artificial and anti-competitive prices" for Brent futures. They also outline attempts to manipulate prices for Russian Urals crude and cite instances when the spread between Brent and Dubai grades of crude may have been rigged.

The oil companies and energy trading houses, which include Trafigura Beheer and Phibro Trading, submitted false and misleading information to Platts, an energy news and price publisher whose quotes are used by traders worldwide, according to the proposed class action filed on Monday in Manhattan.

In 85 pages, the plaintiffs describe how the market allegedly showed that the Dated Brent spot price was artificially driven up or down by the defendants, depending on what would profit them most in swap, futures or spot markets.

They allege the defendants used methods including "spoofing" - placing orders that move markets with the intention of cancelling them later.

Platts' methodology "can be easily gamed by market participants that make false, inaccurate or misleading trades".

BFOE refers to the four oil grades - Brent, Forties, Oseberg and Ekofisk - that collectively make up the Dated Brent benchmark.

The suit provides an insight into one of the less transparent corners of global trading - the US$5.7 trillion a year market in physical commodities, including metals and agricultural products as well as fuel, where spot trading is largely private.

By contrast, stocks and futures transactions are conducted on regulated exchanges with prices visible to all.

"It's a very obscure market," David Kovel, a lawyer for the traders, said of oil traded outside of exchanges such as the Nymex. "To outsiders, it can seem impenetrable. Specialists and specialty traders in the market can take advantage of this obscurity."

Several companies named in the suit have been the focus of previous suspicions of price manipulation. In May, European Union antitrust authorities raided the offices of companies including Platts, BP and Shell based on allegations of collusion in setting prices of crude, refined products and biofuels. The authorities have not announced their findings or charged anyone.

Phibro, a unit of Occidental Petroleum Corp, said it had not been served in the lawsuit and said the claims were without merit.

Eric Moses, a Phibro spokesman, said the lawsuit appeared to be related to the European investigation. "Phibro has not been a target of, or involved in, that investigation or any other related investigation," he said.

Specialty traders can take advantage of [the oil market’s] obscurity

Representatives of Shell, Vitol, Trafigura, Morgan Stanley and BP declined to comment on the latest suit.

"It is not uncommon to see these types of private US lawsuits filed following investigations by governmental agencies," said Morten Eek, a Statoil spokesman. "We do not want to make further comments."

Platts, a unit of New York-based McGraw Hill Financial, has not been named as a defendant in any of the lawsuits filed to date alleging manipulation of the market. A spokeswoman declined to comment on the suit.

Jorge Montepeque, a global director of market reporting, said in a July interview that Platts was an independent party with no financial stake in whether prices rose or fell. "We're very good at ensuring all the processes we have are totally free market," he said.

Since at least 2002, the suit's plaintiffs allege, Shell and London-based BP have had enough power in the market to manipulate price trends, an effect they allege was magnified and more disruptive when they used "collusive market power" in acting alongside the others.