How the Oil Market Functions: New Book
London, UK– In a week that saw the launch of a European Commission investigation into deal reporting by oil companies to price reporting agencies (PRAs), oil trading consultancy firm, the Consilience Energy Advisory Group Ltd, has published a new book, “Trading Crude Oil: the Consilience Guide”. This aims to demystify the whole oil pricing and trading process.
Said Liz Bossley, CEO of Consilience and author of the book: “There is a significant issue that may at last be recognised during the course of the EC enquiry: at a conservative estimate at least 200 billion barrels of oil per year, valued at some $20,000 billion, is priced by reference to a shrinking benchmark- Brent crude oil. There appears to be no formal regulatory oversight of physical commodity trades underlying this crucial benchmark.”
Because Brent is a physical commodity it does not appear on the radar of the International Organization of Securities Commission’s (IOSCO) as a target for regulatory oversight.
As the underlying production of the fields that make up the Brent basket continue to decline a more fundamental overhaul of this, the world’s main oil benchmark price, is already on the cards. There is no regulator with clear responsibility for keeping an eye on these inevitable changes to the physical contract, by reference to which a substantial proportion of the oil futures and OTC derivatives market worldwide is priced. The Brent contract has undergone in May 2013 another in a long series of interim repairs to improve its functioning.
Some regulatory supervision of routine market “housekeeping” issues would appear to be beneficial to ensure that there is no question that any individual company or interest group could dictate the form, and value, of the oil benchmark contracts, including but not limited to Brent, that will be traded in the market going forward.
These issues are discussed in Consilience’s new book. www.tradingcrudeoil.co.uk
The Consilience Energy Advisory Group Ltd. is a private energy markets consultancy firm, which was founded in 1999 and is based in London. It works extensively with governments, businesses, exchanges and professional organisations worldwide, specialising in trading issues in the energy sector.
Consilience was co-author of a report commissioned by IOSCO for the G20 ministers in 2011 concerning the activities of price reporting agency (PRA). This resulted in the IOSCO “Principles for Oil Price Reporting Agencies” published 5th October 2012.
 This estimate includes physical cargoes, over-the-counter (OTC) forwards, futures and OTC derivative contracts.