Motorists may have been paying too much for their petrol because banks and other traders are likely to have tried to manipulate oil prices in the same way they rigged interest rates, an official report has warned.
Two different issues here.
1) Was the petrol price manipulated.
2) Petrol and oil are different things.
As to the first, the allegation, umm, it\’s not even that at present, supposition perhaps, is that because the wholesale petrol price is reported by Platts then perhaps it was open to manipulation in the same way as Libor. It could have been, certainly. Whether it was or not is something that will have to be proven.
I don\’t know the details of Platt\’s pricing mechanism but it is along the lines of Libor: collect as much information as you can from market participants, throw out the obviously dud prices and try to pin down what the actual price in the market is. If traders report prices that suit their books well, yes, that \”market\” price might well be influenced.
This is akin to the first set of Barclays Libor manipulation. Traders within the bank trying to get Libor up or down by 1 bps or 2 in order to suit what they have on their trading books. Given that these are futures markets (as well as physical) there\’s no reason at all to think that the manipulation will be all one way or another. In fact, we would expect, if manipulation there was/is, it to be down as often as up.
As to the second, you can see it in that headline which I\’ve quoted. Petrol and oil are different things. Platts petrol is where the refined petrol price is. The oil price is the crude oil price: the price before it goes into refineries.
OK, trivial distinction you might think. But there\’s long been a particular form of woo shouting that all this financialisation has pushed up the price of oil (note, not petrol, but the crude oil price) as more people speculate in it. As hundreds of billions flow into commodity funds then they drive the price of oil up. Therefore we must regulate commodity funds.
These two things will inevitably get confused. If there has been manipulation of the crude price it will be as with Platts petrol: down is as likely as up for it will be individual traders trying to manipulate to suit their own positions. Those positions being as likely to be long as short. This is absolutely not the same as more commodity trading leading to higher prices in general.
Although there will inevitably be some who insist that it is the same. Worth looking out for: I personally expect such nonsense to come from idiots like the World Development Movement. I really don\’t expect it to take long for them to claim that a supposition of manipulation means that they were right, increased speculation means higher prices.
They\’re just different things though, with different effects. Indeed, increased speculation makes manipulation much harder, doesn\’t it? It\’s benchmarks on thin markets that are easy to move, not prices on large and liquid markets.