Concerns are growing about the reliability of oil prices, after a report for the G20 found the market is wide open to “manipulation or distortion”.
Traders from banks, oil companies or hedge funds have an “incentive” to distort the market and are likely to try to report false prices, it said.
Politicians and fuel campaigners last night urged the Government to expand its inquiry into the Libor scandal to see whether oil prices have also been falsely pushed up.
They warned any efforts to rig the oil price would affect how much drivers pay at the pump, which soared to a record high of 137p per litre of unleaded earlier this year.
Robert Halfon, who led a group of 100 MPs calling for lower fuel prices, said the matter “needs to be looked at by the Bank of England urgently”
“We need to know whether the oil price has been manipulated in a similar way to Libor,” the MP for Harlow said. “This impacts on millions of people all round the country concerned about the price of petrol at the pumps.”
Petrol retailers use oil price “benchmarks” to decide how much to pay for future supplies.
The rate is calculated by data companies based on submissions from firms which trade oil on a daily basis – such as banks, hedge funds and energy companies.
However, like Libor – the interest rate measure that Barclays was earlier this month found to have rigged – the market is unregulated and relies on the honesty of the firms to submit accurate data about all their trades.
This is one of the major concerns raised in the G20 report, published last month by the International Organisation of Securities Commissions (IOSCO).
In the study for global finance ministers, including George Osborne, the regulator warns that traders have opportunities to influence oil prices for their own profit.
It points out that the whole market is “voluntary”, meaning banks and energy companies can choose which trades to make public.
IOSCO says this “creates opportunity for a trader to submit a partial picture in order to influence the [price] to the trader’s advantage”.
In an earlier report, the regulator concluded: “It is open to companies to report only those deals that are in their own best interests for the rest of the market to see.”
The price reporting agencies, Platts and Argus, argue they employ journalists to weed out false data submitted by oil traders.
IOSCO says reporters are “well-aware that traders have an incentive to push the market one way or another and do not generally believe everything they are told”.
However it points out this system is heavily reliant on the “experience and training” of journalists to make a judgement about what the oil price should be.
Further alarm bells are being sounded by US regulators, who have already pointed out the rate-rigging scandal could spread to the oil market.
Scott O’Malia, a top official at the US Commodities Futures Commission, has drawn attention to the “striking similarity” between the potential for manipulating oil and Libor.
British regulators carrying out the Wheatley Review into the Libor scandal have this week signalled they will look into whether other markets were skewed.
Paul Tucker, the Bank of England’s deputy governor, told MPs that Barclays’ abuse of the Libor system may be only one part of the banks’ dishonesty over crucial financial information.
Politicians last night called on the Bank of England and the Government to take heed of IOSCO’S finding about the oil market to prevent another crisis of confidence in the banks.
Lord Oakeshott, the former Liberal Democrat Treasury spokesman, said the oil price system ought to be examined in the wake of the Libor scandal.
“Clearly it’s right we must shine a light on how other crucial benchmark prices are reported, especially when they affect the cost of living for millions of motorists,” he said.
Brian Madderson, chairman of the Petrol Retailers’ Association, also called for an investigation into the “alarming” conclusions of the G20 report.
“All the petrol retailers buy their products based on Platts prices,” he said. “If IOSCO thinks the price is open to manipulation it could well be and that would affect prices on the forecourts.”
Banks are also calling for reform of the oil price system, amid fears that it is open to abuse by a minority of traders.
Simon Lewis, chief executive of the Global Financial Markets Association, has raised concerns about the “opaque” way the oil price is worked out.
In a letter to IOSCO, he said price reporting agencies may not be as impartial as they claim, because they take fees from banks and oil companies to provide information.
“Incentives may arise to favour those who pay greater subscriber fees or provide greater access to market information,” he said.
Some experts, such as Raymond Learsy, a former commodities trader and author of Oil and Finance, have been warning for years that the oil market is open to corruption.
“Given how important Libor is, if that can be manipulated, then why can’t oil be manipulated?” he said. “The price lends itself to manipulation. The oil price is not a true reflection of supply and demand.”
The reporting agencies have hit back at claims their prices are open to distortion. In a joint statement, Platts and Argus said there are “fundamental differences” in the way Libor and oil prices are reported.
“Independent price reporting organisations are independent of and have no vested interest in the oil and energy markets,” they said. “Their ownership is transparent, and strict internal governance separates editorial and commercial functions. Independent price reporting organisations are not market participants, nor providers of transaction execution, clearing or settlement services.”
Platts added that there are four main differences between oil prices and Libor – the quality of its data, its independence, competition between reporting agencies and the transparency of its methodology.
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