For oil traders, Jorge Montepeque is a man of unusual influence. For outsiders, he personifies the power that his employer, price reporting agency Platts, carries in the $2.5tn a year energy market. Oil traders say that Mr Montepeque, global director of market reporting at Platts, is one of the architects of the so-called “market-on-close” Platts pricing system that the European Commission is now investigating.
The system creates a virtual electronic window in which oil companies, trading houses and banks offer “ask” and “bid” quotes for commodities such as Brent crude oil. Platts’ staff use the information from the window – and their judgment – to assess what the price of commodities is. The market-on-close system was introduced by Platts in 1992 in Asia, and rolled into Europe in 2002 and the US in 2006. The process brings some clarity to what otherwise are opaque physical markets. But it also has flaws: it uses only a fraction of the trades that are closed on any given day, and companies can choose whether to participate in it, and to submit only a portion of the trades, rather than all. The current system is the latest incarnation of a century-old business for Platts.
The company, now owned by New York-listed McGraw-Hill Financial, started in 1909 assessing the price of crude oil in the then nascent US petroleum industry. After borrowing $2,500, Warren Cumming Platt, a 25-year-old journalist from Ohio, launched a monthly magazine called National Petroleum News with the aim of levelling “the information playing field between independent oilmen and Big Oil by promoting transparency within the oil industry”. Over the next century, Platts grew into an essential source of market data for energy and metals markets. The company also filled a vacuum left by national and international regulators – becoming de facto the regulator of physical commodities markets as critical as Brent crude, the main benchmark of the oil industry.
Mr Montepeque often says his aim is to provide a fair assessment of what is the price of energy any given day. But critics say that he and Platts often impose their views about how to assess prices. This year, for example, he clashed with Shell and BP about what is the best way to estimate the price of Brent. BP, in an open letter, urged him to “reconsider his position”. Shell expressed a similar view. Platts, in the end, did not change its view, imposing a new methodology amid industry opposition that is paradigmatic of the power of Platts as a quasi industry regulator.
Platts has another unusual power more akin to a government regulator than a private company: it can decide who participates in the “market-on-close” window. The company often penalises companies for misbehaviour banning them from the process, something known in the industry as “boxing”. Oil traders complain they cannot appeal the “boxing” as Platts is judge and jury.