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Montepeque of Platts Caught in Battle Over Oil Assessments

Screen Shot 2013-05-17 at 01.06.41The oil-market investigation became public in May when European Competition Commissioner Joaquin Almunia, who is also pursuing price-fixing allegations related to the London interbank offered rate, or Libor, sent investigators to seize computer records and documents from Platts offices, and raided BP Plc (BP/), Statoil ASA and Royal Dutch Shell Plc (RDSA), three of Europe’s largest oil companies,

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By the time Jorge Montepeque came to London in January 2002 to revamp Platts energy-price benchmarks amid a series of manipulation scandals, he’d already earned a reputation as the company’s troubleshooter.

During a decade in Singapore leading the company’s Asian editorial operations, Montepeque brought more transparency to the $6 trillion global energy market. He ordered reporters to stop using anonymous tips to determine fair values of fuels, pushed traders into a system that sent bids and offers to subscribers around the world and made it more difficult to manipulate prices of Dubai crude.

Now, an investigation by Europe’s top antitrust official is targeting potential manipulation of the Platts system — which depends on traders voluntarily providing information to journalists, who calculate, or assess, prices for crude, fuel and other products, including Dated Brent, which underpins contracts for more than half the world’s oil. The probe comes as global regulators scrutinize financial measures around the world after fining banks about $2.5 billion for distorting benchmarks.

“If the number is perceived to be, or worse yet, pushed to be in favor of a consumer, or a producer, or an intermediary, then it loses relevance, and it should lose its relevance,” Montepeque, 56, said in a July interview at the company’s headquarters in London’s Canary Wharf. “We’re very good at ensuring all the processes we have are totally free market.”

No Exchange

Unlike markets for stocks and futures, where trading is conducted on regulated exchanges with prices visible to all, the buying and selling of $5.7 trillion a year in physical commodities is largely private. Last year, the International Organization of Securities Commissions, or Iosco, issued a report saying benchmarks published by Platts and others remain vulnerable to manipulation.

Companies don’t have to report all of their trades to Platts. Instead, the company, a unit of New York-based McGraw Hill Financial Inc. (MHFI:US), bases assessments on bids, offers and sales submitted by instant messages, phone calls and its electronic platform, called the eWindow.

Platts reporters, sitting in an open bullpen on the 12th floor of McGraw Hill’s London office, monitor the buying and selling of cargoes of the four North Sea crudes that make up the Dated Brent assessment. At 4:30 p.m. London time, the window closes, and the editorial staff calculate the day’s price.

Firms may selectively submit information to skew the benchmark in their favor, Iosco said. Prices are “out of line with our experience of the day” several times a year, Total Oil Trading, or Totsa, an arm of Paris-based Total SA (FP), Europe’s third-largest oil company, said in an August 2012 letter to Iosco.

Total Complaint

“Our comments referred to occasional differences of view on the methodologies applied by Platts,” Totsa said in a Sept. 4 e-mailed statement. “We were answering a technical question on the processes used to construct price series or indices.”

The system created by Montepeque has helped Platts bring more transparency to energy markets and build a business that will earn approximately $500 million this year in subscriptions and royalties for McGraw Hill, accounting for 11 percent of revenue, according to company reports. It publishes about 12,000 commodity-price assessments, references and indices used to price raw materials from sugar to platinum to jet fuel.

Bloomberg LP, the parent company of Bloomberg News, competes with Platts to provide energy news and information, and distributes the company’s data through the Bloomberg terminal to Platts subscribers.

Almunia Probe

The oil-market investigation became public in May when European Competition Commissioner Joaquin Almunia, who is also pursuing price-fixing allegations related to the London interbank offered rate, or Libor, sent investigators to seize computer records and documents from Platts offices, and raided BP Plc (BP/), Statoil ASA and Royal Dutch Shell Plc (RDSA), three of Europe’s largest oil companies, as well as Rotterdam-based Argos Groep BV. No charges have been brought against any of the companies.

“The fact that the commission carries out such inspections does not mean that the companies have engaged in any anti-competitive behavior, nor does it prejudice the outcome of the investigation itself,” Ross Whittam, a Shell spokesman, said in an Aug. 29 e-mail.

SOURCE

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