Have we been paying too much for gas?

Shutterstock / Rob WilsonHave we been paying too much for gas?

The good folks at BP, Shell, and Statoil would never break the law and screw over their customers in a quest for inflated profits, surely.

Yet that is the very accusation coming out of Europe, where the industry giants are suspected of colluding to fix prices for crude, biofuel, and refined oil products at artificially high levels, allowing them to reap greater profits than the laws of supply and demand would dictate in a truly competitive economy.

Offices of the companies were raided last week by European Commission officials, and the Justice Department is being urged to investigate whether the alleged price fixing spilled over onto American shores.

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From The Hill:

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The Senate Energy and Natural Resources Committee Chairman aired his concerns about the recent probe by EU officials into potential oil price manipulation in a Friday letter to Attorney General Eric Holder.

[Sen. Ron Wyden (D-Ore.)] said price fixing in commodity markets “has been an area of abuse within the U.S. in the past,” noting the Enron power market scandal.

“It is critically important to determine whether or not similar efforts have been made to manipulate U.S. oil indices by these firms or others,” he added.

EU investigators raided the European offices of Statoil, BP and Shell earlier this week. The officials are looking into whether the firms submitted false information to Platts, a price-reporting organization owned by McGraw-Hill Financial.

The Economist puts the scale of the growing scandal in some perspective:

The volumes of oil and products linked to these benchmark prices [submitted to Platts] are vast. Futures and derivatives markets are also built on the price of the underlying physical commodity. At least 200 billion barrels a year, worth in the order of $20 trillion, are priced off the Brent benchmark, the world’s biggest, according to Liz Bossley, chief executive of Consilience, an energy-markets consultancy. The commission has said that even small price distortions could have a “huge impact” on energy prices. Statoil has said that the commission’s interest goes all the way back to 2002. If it is right, then the sums involved could be huge, too.

If true, the accusations wouldn’t just mean that motorists have been paying too much at the pump. Energy prices affect everything from food to consumer goods. From The Telegraph:

Ed Davey, the [U.K.] Energy Secretary, has promised companies will face the “full force of the law” if their behaviour is found to have “driven up” petrol prices.

However, his Department of Energy and Climate Change also acknowledged the impact of oil market rigging could be bigger than simply affecting petrol prices.

It said manipulation of the oil price could have driven inflation and pointed out that the market is an important benchmark for many financial transactions.

High oil prices also feeds through to bigger bills for food, clothes and other essentials because it pushes up the cost of transport and manufacturing.

A high oil price will also fuel inflation, which erodes the value of people’s savings, and can stifle economic growth, by pushing up businesses’ costs.