A group called the International Organization of Securities Commissions (IOSCO), composed of representatives from national financial regulators, had proposed changing the way commodities benchmarks, including the price of Brent crude oil, are compiled. Opposition from the International Energy Agency (IEA), OPEC and oil supermajors Total S.A. (NYSE: TOT) and Royal Dutch Shell PLC (NYSE: RDS-A) (NYSE: RDS-B) finally led to a rollback to the status quo ante.
IOSCO originally proposed that participants in the market for physical crude send all prices to price-reporting agencies (such as Platts) to enable the agencies to get a complete picture of the market. The group also proposed that only completed transactions be used to arrive at the benchmark price.
In an internal memo from the U.S. Commodities Futures Trading Commission (CFTC), the U.S. regulator said that the “international organizations and major oil companies uniformly objected” to the mandatory reporting requirements and to the use of only concluded deals. The Financial Times reports that the final draft of the benchmarking regulation proposes merely that benchmark pricing be set as it currently is and that “there is no requirement on any physical market oil participant to submit transaction data.”
For the crude market the proposed ruling means that the current system under which agencies like Platts gather bids, offers and trades and then derive a price will remain in force. If this sounds a bit like how the Libor rates were conjured, that’s because it is. And so it will remain.
Paul Ausick
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