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"It sounds like profit before people yet again!" "I need cheaper petrol." "There is something wrong here!" These comments were posted on Wednesday on the angry-sounding website PetrolPromise.com, which campaigns "for cheaper petrol and diesel." The European Commission has now waded in, launching a probe into "collusion" among oil producers to fix the prices of some oil and biofuel products. It has the potential to be the energy equivalent of the Libor banking scandal. But do not expect it to lead to cheaper gasoline.
Three oil companies involved – Royal Dutch Shell PLC, BP PLC and Statoil ASA – say they are co-operating with the investigation into whether there have been breaches of European antitrust rules in the setting of prices. The Commission has teeth, as previous investigations showed, including one into anti-competitive behaviour by Big Pharma to keep generic drugs off the market. And as the Libor scandal suggests, regulators will come down hard on offenders. So far, three banks have paid $2.5-billion (U.S.) in fines, with more almost certain to come.
The Commission can levy fines of up to 10 per cent of revenue for anti-competitive behaviour. Shell, BP and Statoil had combined 2012 revenue of nearly $1-trillion. So it is worth taking this probe seriously. But beware of too many parallels with Libor, which is an example of a cartel using inside information to set a price. The price of gas is determined by factors including the price of a barrel of oil – one of the most traded and liquid products. That price used to be set by OPEC, but became market-based in the 1980s and is compiled by price reporting agencies such as Platts – also subject to the probe.
The oil price has been high in the past few years, and also exceedingly volatile. This may account for why gas prices seem to move in only one direction. It would be good to know all the factors that determine the price of a litre of gas. But it is unrealistic to expect it to be cheaper.