Traders say voluntary price reporting allows for manipulation
Traders say they commonly use tricks in an effort to manipulate Platts benchmark prices for bunkers and fuel oil on the spot market, the Wall Street Journal reports.
Halis Bektas, head of the Swiss firm Rixo International Trading Ltd., described one strategy he has used himself: sell a small amount of oil at a loss causing the benchmark price to fall, and then buy large volumes at the lower price.
"Often traders manage to manipulate quotes," said Bektas.
A Rotterdam-based bunker trader was quoted saying that making deals in an effort to move markets "is common."
He described how in 2005 he had a contract to sell 6,000 metric tonnes (mt) of bunker fuel at the Platts benchmark price on a specified day.
Rotterdam Based Bunker Trader
You're just increasing the amount of buying pressure on the market
Before the order was to be filled, he bought 2,000 mt of bunkers deliberately at a premium to the current market price and reported the deal to Platts, taking a $10,000 hit on the transaction.
However later that day the Platts benchmark went up, and when he sold the 6,000 mt of bunkers later that afternoon as planned, he made back the $10,000 plus additional profit.
"Effectively, it's not illegal or corrupt," the trader said. "You're just increasing the amount of buying pressure on the market."
In general, traders were said to view the behaviour as legal because it doesn't involve any obviously forbidden behaviour such as colluding with competitors or reporting fake prices.
Since the spot market for oil is based on private deals with no disclosure requirements, reporting services like Platts depend on traders to volunteer information, making the system much less transparent than the markets for stocks or oil futures.
"It's not a perfect system, but it's the best we can have given the nature of the market," said Olivier Jakob, managing director of Swiss oil-markets research firm Petromatrix.
However Platts says it guards against manipulation, ignoring reported prices that are out of line with the market, and does not believe traders have successfully gamed the system.
"We are not aware of any evidence that our price assessments are not reflective of market value," Platts said.
On days in which there aren't many trades, Platts have also instructed its reporters to gauge trader sentiment, and "push the trader to give their 'best guess' of where the midpoint of the market would be."
European regulators are investigating possible price fixing of crude oil, refined oil products, and biofuels by companies including Royal Dutch Shell Plc, BP Plc, and Statoil ASA.