With the fires from the Libor scandal still burning the temperature is rising in the oil markets amid mounting concerns that this could be the next of the City's dark corners to blaze into life.
The majority of those involved subscribe to a strict code of omerta that any Mafia don would be proud of. Except that it has recently come to light that French oil giant Total has broken the code by telling regulators that prices can be incorrect, with the clear implication that they could be subject to manipulation.
Iosco, the International Organisation of Securities Commissions, which acts as umbrella body for the world's financial watchdogs, has been investigating the market but recently backed away from imposing tough new rules.
That may leave it exposed to savage criticism if a scandal does emerge because of what Total Oil Trading said. In response to an Iosco questionnaire it indicated that the same kind of games over pricing exposed in the Libor market could take place in the crude oil and other energy markets.
What's more, that could have a knock-on effect in other markets.
In its submission, Total says: "The published prices do not always represent those of the market with the same degree of accuracy... As well, the quality of the reporting is not always consistent over time. While certain PRAs (price reporting agencies) have pricing processes that are reproducible using the underlying data, others do not (the principal difference being the use of "judgement" that may bias prices away rather than toward the market)." The key word being bias.
And there's more: "We encounter, several times a year, estimates of market prices on key indices that are out of line with our experience of the day and with the available information on which the price formation is based."
The real worry for outsiders could be this: "The increased penetration of oil in financial investment portfolios and the increased degree of co-linearity between different financial markets and different commodity markets suggests that a sudden and massive shift in oil markets could propagate into other markets."
Overall, as Total points out, the oil market is not as big as some: some $250bn (£156bn) a day is turned over in oil futures markets, about two billion barrels a day, although two or three times that is handled direct or "over the counter" between market players.
The oil industry has pooh-poohed suggestions of anything sinister and argued the differences in reported prices and actual prices are likely only a couple of cents in the dollar here or there. But Total said because prices didn't necessarily provide "an accurate representation of the market" they could "consequently deform the real price levels paid at every level of the price chain, including by the consumer".
Total did state price reporting agencies, dominated by Platt's, part of the McGraw Hill Group, were generally "conscientious and professional".
But it only took attempts to game the Libor process — actual manipulation has never been proved — to ignite a firestorm.Reuse content