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Transparency and Integrity in Global Oil Markets Pricing

The McGraw-Hill Companies

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Transparency and Integrity

INTRODUCTION
Energy markets have always been at the center of the world’s economic and political stage, but never more so than now. Oil prices continue to flirt with record highs. Unprecedented volatility is a fact of life across oil, natural gas, electricity and even the once placid petrochemicals sector. Demand continues to surge in China and elsewhere in the developing world. Energy planners fret over the spectre of under-investment and rising nationalism in energy-rich areas. At the same time, periodic market dislocations and crises have focused the attention of governments and regulators on the energy sector, and particularly the area of pricing. The collapse of Enron brought down a house of cards in North America, exposing widespread attempts to “game the system” in gas and power markets. Regulators rightly pursued those abusing the energy markets, but at times regulatory zeal threatened in its own right to undermine market liquidity and confidence. More recently, long-standing crude oil benchmarks at the heart of global market complexes have come under stress from falling physical production at key fields, while growing intraday market volatility in refined oil products is rendering traditional price-assessment systems obsolete. In a high-volatility environment, transparency becomes a more critical element for market participants, consumers and investors, who expect clear answers when prices move sharply. It is no surprise that transparency and integrity are increasingly highlighted as the essential ingredients for market confidence and efficiency. How should we define “price transparency?” To Platts, whose main business is studying energy markets and formulating ways to extract reliable price information to serve those markets, transparency is the quality that makes it possible for observers to know the