Here is a little-known fact: Almost 95% of the oil in the world is priced using reporters' assessments. Amazing, no? Oil price reporting agencies (PRAs), including Platts, Argus Media and ICIS, are responsible for much of the contract pricing of crude oil, oil products and petrochemicals around the world, from the wellhead to the refinery to the pump. Regulators have had little interest in these agencies over the years until that fateful day in September 2008 when crude oil bumped up against $150 per barrel. Since then they have been trying to wrap their heads around this industry we call the oil business. The agencies have been under the microscope of International Organization of Securities Commissions since the G20 asked them to look into last year.
Alarmed by the sudden interest, these three PRAs are trying to head off regulators by offering up a self-regulation code, according to today's Wall Street Journal. This is a knee-jerk reaction and will do little to assuage regulators, which are being beaten up by politicians trying to somehow force oil prices down.
But regulators (and clueless politicians) should take note: there is a reason that PRAs exist. Oil is the most non-homogenous commodity on the planet. A barrel of crude oil from one North Sea platform can differ in specification enormously from one only a few nautical miles away. Every refined barrel of petroleum products and petrochemicals differs depending upon the source of the crude oil, the sophistication of the refinery, and the appetite of the consumer. There is no one way to price oil without using the human brain. Only an experienced price reporter knows how specifications differ. Only a human being can tell when a source is telling a lie (and even with experience this is difficult). I should know. I have worked as a price reporter for all three of the above agencies.All of which are dedicated to ensuring the most accurate, honest, BS-proof prices.
Price reporting is a thankless task, no reporter gets thanked for getting prices right. But the truth is, in the long run they do. They may be wrong for a day, or even a week, but it has been proven again and again that PRAs call the market accurately over time. The regulators should leave well enough alone. The words 'can' and 'worms' spring to mind.