One of my kids showed me a cartoon the other day that cracked me up. The picture is of two sheep looking nervous is the foreground with a farmer and sheepdog visible behind them.
“I’m telling you!” says the first sheep. “The man and the dog are working together!”
“Ah you and your conspiracy theories.” Comes the reply. “Knock it off.”
The problem with conspiracy theories is that now and again they turn out to be true. When it comes to the price of fuel this is something that affects two million Irish drivers directly and over 230 million drivers around Europe. Even the tiniest bit of skull-duggery in prices can add up to a vast amount of money.
Figuring out how much fuel costs should not be that complicated in theory. You look at the price of oil on world markets, the exchange rate between the Euro and the US dollar and the price of wholesale fuel coming out of refineries, and you factor in what demand is looking like at the moment.
But those products are now bought and sold on international exchanges in deals of bewildering complexity. It can be desperately difficult to look through the smoke and mirrors and see what is going on.
One thing that certainly appears bizarre is that European wholesale prices are sometimes seen moving in the opposite direction to prices elsewhere in the world.
We have been noticing this for a while and so have our colleague organisations around Europe. This first came to prominence in 2008, just before the financial crisis, when oil shot up to $148 per barrel. We were suspicious then, and again in 2011, that European wholesale prices seemed to have a mind of their own.
Traditional refineries that look at real factors like supply and demand are being squeezed by speculators who move huge amounts of money into fuel products and out again, trying to make a quick buck. The International Energy Commission warned recently that these commodity traders and other players are distorting the market.
We had the same worry. The AA, our friends in the UK and our equivalent clubs in Austria and Portugal called on the European Commission to investigate. They did not appear to be listening to us until last week.
Rather dramatically, the head offices of oil companies in London and Oslo were raided by the local equivalents of the Competition Authority. Files and computers were seized. The suspicion is that somebody somewhere has been manipulating data in order to spoof the ratings agencies that look at wholesale prices on European exchanges.
We have become familiar with ratings agencies here in recent years. For oil the most significant one in Europe is an entity called Platts. These guys assess the market continuously and report on prices on a daily basis. Often those ‘Platts spot prices’ are used as key figures in contracts.
So if you are like Wizard of Oz behind the curtain, pulling levers and manipulating the information, then this could quite readily distort the picture. Of course nothing is proven but I think it is a safe assumption that no such sinister forces are manipulating prices in favour of the consumer.
It is important to say that this has nothing to do with your local garage nor indeed with the company that supplies him. The distortion, if it is happening, is at European level and is not connected to anything on the island of Ireland.
We may have other issues and we do want to see strong local competition which is not always good enough. But that is an unconnected local matter.
I don’t know what will come of the investigation and it will no doubt be a long time before we find out for sure, if we ever do. But dawn raids like that must surely concentrate the mind. If found guilty of market manipulation an oil company could be fined extremely heavily; amounts in the hundreds of millions and more.
At least we should get a little more transparency in just how our prices are arrived at, and that has to be a good thing.
