The European Commission has begun an investigation into the possible manipulation of energy price benchmarks. Several companies in the energy sector had surprise inspections carried out by the European Commission for alleged infringement of European antitrust law, namely the manipulation of the reference price for oil and bio fuel products. This investigation will most likely have very significant implications for the whole oil industry and its customers as well as the any banks, trading houses, utilities or major users who buy oil products or trade oil based commodities. The effects of the investigation will not be limited to Europe.

Decisions taken in the early stages of a cartel investigation or immediately upon discovering evidence of wrongdoing can have very significant consequences.  The cost of non-compliance including financial penalties, litigation, reputational damage, and unenforceable agreements can be so great that identifying and assessing competition compliance risk factors is business critical. Please consider if you have contacts in your company or clients that might be interested in our services. We have excellent competition law and energy teams in Europe and the US that can address any issues your company or clients may have in this context.

The Commission also sent requests for information (RFIs) to major energy companies, price reporting agencies and trading houses. There is no inference that these companies are subject to the investigation. Rather the articles infer that the European Commission is using the RFIs to try to gain knowledge on how the market works, especially with regard to the Platts market-on-close (MOC) system.

When the dawn raids took place, the European Commission said in a press release that it has concerns that the companies may have colluded in reporting distorted prices to a price reporting agency to manipulate the published prices for a number of oil and biofuel products. Furthermore, the European Commission stated in its press release that it has concerns that the companies may have prevented others from participating in the price assessment process, with a view to distorting published prices. An article from Reuters alleges that the key question in the RFIs is whether there is any proof of major discrepancies between bids and offers submitted to Platts and actual deals done in the market.

The current focus of the investigation is on the period 2010-2013 but as the statute of limitations for enforcement action taken by the European Commission is five years then the scope of this investigation could broaden. If the infringement was a practice that has been ongoing for many years, then the European Commission could potentially look back for the whole duration of this alleged illegal practice without limitation in time.

The effects of this investigation may well spread beyond the borders of Europe for the following reasons:

  • the reference prices are used for products traded not only in Europe but around the world;
  • the inspected companies have operations located around the world; and
  • it has been reported in the press that a class action suit was lodged in New York Federal Court by commodities traders who allege that some energy companies manipulated prices of North Sea Brent Crude Oil and Brent Crude Oil futures contracts traded on the New York Mercantile Exchange and the Intercontinental Exchange.

Some commentators opine that this investigation could possibly reveal a monumental impact on the market arising from the alleged fixing of crude oil benchmark prices since not only the physical trading, but also the derivatives markets, built on the price of the underlying oil commodity may be seriously affected.

Therefore, the companies affected by this investigation include not only companies who may have participated in the alleged illicit behaviour but also those companies who may have bought products, be they tangible oil-based goods or intangible financial instruments, based on the underlying benchmark rate. For example, airlines may have been affected in the latter sector given their use of hedging techniques against oil prices.

Lastly it is interesting to note that there had been recent calls from European regulators for Platts and other price reporting agencies to be subject to more intensive oversight from an external regulator in order to avoid market manipulation.

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