Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Oil futures traders allege oil companies conspired to manipulate prices for crude oil and oil futures, (Jul 19, 2013)

By Tobias J. Gillett, J.D., LL.M.

Traders of Brent Crude Oil Exchange Traded Instruments have filed a complaint in the federal district court for the Southern District of New York, alleging that the oil companies BP p.l.c., Royal Dutch Shell plc, and Statoil ASA colluded to report false trade information to Platts, a price reporting agency for Brent Crude Oil, resulting in artificially high prices for Brent Crude Oil and Brent Crude Oil Exchange Traded Instruments (Port 22, LLC v. BP p.l.c., July 16, 2013).

According to the complaint, Platts reporting agency, a unit of McGraw Hill Financial, Inc., publishes benchmark prices for Brent Crude Oil. “Dated Brent” is the world’s leading international crude oil benchmark. This benchmark underpins the price of exchange-traded derivatives, refers to the spot price for Brent Crude Oil, and constitutes a rolling assessment reflecting the price of physical, wet Brent, Forties, Oseberg, and Ekofisk (BFOE) cargoes loading no less than ten days forward (originally 7 to 15 days forward, changed to 10 to 21 days in 2002, and extended to 10 to 25 days in 2012). “Cash Brent” are forward contracts for a particular month, with no specified date of loading, that become Dated cargoes when they have been assigned a date to be loaded onto a tanker.

Brent Crude Oil Futures contracts are standardized contracts to buy or sell Brent Crude Oil during the time period in the contract, while Brent Crude Oil Options contracts are standardized agreements concerning the purchase or sale of a Brent Crude Oil Futures contract during the time period in the contract. Both the Futures and the Options prices are tied directly to the price of Brent Crude Oil in the cash or spot market. The futures are traded as exchange traded instruments on the New York Mercantile Exchange (NYMEX) (acquired by the Chicago Mercantile Exchange (CME) in 2008) and the Intercontinental Exchange (ICE).

Platts reports Brent Crude Oil spot prices from bids, offers, and transactions for spot Brent Crude Oil reported to Platts that take place during the 30 to 45 minutes before the close of the market. The complaint asserts that the market for Brent Crude Oil Exchange Traded Instruments “is inextricably linked to the spot market for Brent Crude Oil, and thus to Platts pricing, and price movements in the Brent Crude Oil cash or spot market, including those reported on Platts, cause price movements in the Brent Crude Oile Exchange Traded Instruments.”

The complaint claims that the oil companies manipulated the prices of Brent Crude Oil and Brent Crude Oil Exchange Traded Instruments from at least January 1, 2002 through the present by (1) reporting false and misleading Brent Crude Oil trade information to Platts, and (2) preventing their competitors from participating in the pricing process.

The complaint refers to unannounced raids conducted by the European Commission on May 14, 2013, at the premises of companies involved in the crude oil, refined oil products, and biofuels sectors. The EC announced that the inspections related to possible collusion “in reporting distorted prices to a Price Reporting Agency to manipulate the published prices for a number of oil and biofuel products.” On June 25, 2013, the FTC opened its own investigation into how the prices of Brent Crude Oil, including prices reported to Platts, are set.

The complaint asserts a claim for violation of Section 1 of the Sherman Act, based on an alleged conspiracy among the oil companies to fix the prices for Brent Crude Oil and Brent Crude Oil Exchange Traded Instruments, and claims for violation of the Commodity Exchange Act and for unjust enrichment. The plaintiffs seek an award of damages and punitive damages for the Commodity Exchange Act violations, treble damages for the violations of the Sherman Act, restitution for unjust enrichment, a declaration that the oil companies’ conduct constituted an unlawful restraint of trade in violation of Section 1 of the Sherman Act, a permanent injunction against continuing the alleged conspiracy, an award of attorneys’ fees and costs, and any other just and proper relief.

The case is No. 1:13-cv-04938-UA.

Attorneys: Robert S. Schachter (Zwerling, Schachter & Zwerling, LLP) for Port 22, LLC.

Companies: Port 22, LLC; Atlantic Trading U.S.A., LLC; BP p.l.c.; Royal Dutch Shell, plc; Statoil ASA

News: Antitrust NewYorkNews