Some of the world's biggest oil companies including BP, Statoil and Royal Dutch Shell conspired with Morgan Stanley and energy traders including Vitol to manipulate the closely watched spot prices for Brent crude oil for more than a decade, they allege.
The North Sea benchmark is used to price more than half the world's crude and helps determine where costs are headed for fuels including gasoline and heating oil.
The case, which follows at least six other U.S. lawsuits alleging price-fixing in the Brent market, provides what appears to be the most detailed description yet of the alleged manipulations and lays out a possible road map for investigators.
The traders who brought it -- who include a former director of the New York Mercantile Exchange, or Nymex, a market where contracts for future Brent deliveries are traded -- allege they paid "artificial and anticompetitive prices" for Brent futures. They also outline attempts to manipulate prices for Russian Urals crude and cite instances when the spread between Brent and Dubai grades of crude may have been rigged.
The oil companies and energy-trading houses, which include Trafigura Beheer and Phibro Trading, submitted false and misleading information to Platts, an energy news and price publisher whose quotes are used by traders worldwide, according to the proposed class action filed Oct. 4 in Manhattan federal court.
Over 85 pages, the plaintiffs describe how the market allegedly showed that the Dated Brent spot price was artificially driven up or down by the defendants, depending on what would profit them most in swap, futures or spot markets. They allege the defendants used methods including "spoofing" -- placing orders that move markets with the intention of canceling them later.
Platts' methodology "can be easily gamed by market participants that make false, inaccurate or misleading trades," the plaintiff traders alleged. BFOE refers to the four oil grades -- Brent, Forties, Oseberg and Ekofisk -- that collectively make up the Dated Brent benchmark.
The suit provides an insight into one of the less- transparent corners of global trading -- the $5.7 trillion-a- year market in physical commodities, including metals and agricultural products as well as fuel, where spot trading is largely private. By contrast, stocks and futures transactions are conducted on regulated exchanges with prices visible to all.
"It's a very obscure market," David Kovel, a lawyer for the traders, said of oil traded outside of exchanges such as the Nymex. "To outsiders, it can seem impenetrable. Specialists and specialty traders in the market can take advantage of this obscurity."
Several companies named in the suit have been the focus of previous suspicions of price manipulation. In May, European Union antitrust authorities raided the offices of companies including Platts, BP and Shell based on allegations of collusion in setting prices of crude, refined products and biofuels. The authorities haven't announced their findings or charged anyone.
Phibro, a Westport, Conn.-based unit of Occidental Petroleum, said it hadn't been served in the lawsuit and said the claims are without merit. Eric Moses, a Phibro spokesman, said the lawsuit appears to be related to the European investigation. "Phibro has not been a target of, or involved in, that investigation or any other related investigation," Moses said.
Representatives of Shell, Vitol, Trafigura, Morgan Stanley and BP declined to comment on the latest suit.
Platts, a unit of New York-based McGraw Hill Financial, hasn't been named as a defendant in any of the lawsuits filed to date alleging market manipulation. A spokeswoman declined to comment on the lawsuit.
Jorge Montepeque, global director of market reporting, said in a July interview that Platts is an independent party with no financial stake in whether prices rise or fall. "We're very good at ensuring all the processes we have are totally free market," he said.
Since at least 2002, the suit's plaintiffs allege, Shell and London-based BP have had enough power in the market to manipulate price trends, an effect they allege was magnified and more disruptive when they used "collusive market power" in acting alongside the others.
Lawyers who write class-action complaints often rely on "information and belief," legal jargon that loosely translates into allegations that don't necessarily come with hard evidence. In such lawsuits, as with most filed in federal courts in the U.S., plaintiffs must allege sufficient facts that, if believed, would give them a plausible claim.
In this lawsuit, the plaintiffs say it is their own, expert analysis that provides proof that the fix was in.
"This complaint provides detail about particular conduct not previously known in the market," said Kovel, a partner at Kirby McInerney LLP. "It's brought by highly prominent futures traders."
Kovel represents plaintiffs Kevin McDonnell, a former Nymex director, as well as independent floor traders Anthony Insinga and Robert Michiels, and John Devivo, who held a seat on Nymex and traded for his own account. The complaint says the plaintiffs are among the largest traders of Brent crude futures contracts on Nymex and the Intercontinental Exchange. The four, who don't specify the amount they are claiming in damages, seek to represent all investors who traded Brent futures on the two exchanges since 2002.
The plaintiffs allege that in February 2011, defendants manipulated the trade of Forties-blend crude, one of four grades used by Platts to determine the Dated Brent benchmark, which represents the price of physical cargoes for delivery on the spot market.
Shell offered to sell shipments to keep the price of Forties "artificially low," according to the plaintiffs.
Morgan Stanley was the only buyer for one of four such orders, or cargoes, totaling 2.4 million barrels of oil, the traders said. The Feb. 21, 2011, transaction was prearranged to set a lower price for Dated Brent, according to the complaint.
"Shell's trade to Morgan Stanley successfully drove the Forties assessment lower than where it otherwise would have been," the plaintiffs said.
On Feb. 24, 2011, Shell sold two Forties cargoes -- or about 1.2 million barrels -- in the Platts pricing process at about $1 a barrel less than a trade that was outside the Platts window, according to the lawsuit.
The suit alleges Shell had a large short position in the swap markets and would benefit from falling prices of Forties.
The plaintiffs cited a trade outside Platts's pricing process -- known as market-on-close, or MOC -- that day allegedly showing the "artificiality of Shell's reporting." They cited a trader's reference to the purchase as not being by "one of the BFOE boys."
"By BFOE boys," the plaintiffs said in their complaint, "this trader was likely referring to the cabal of defendants, including Shell, which controlled the MOC process."
The claimants also alleged that in September 2012, Shell, BP, Phibro, Swiss-based Vitol and Netherlands-based Trafigura rigged the market through "a combination of spoofing, wash trades and other artificial transactions" in the Platts pricing process.
The defendants pressured the market downward at the start of the month by colluding to carry out irregular and "uneconomic" trades, according to the lawsuit. They drove prices higher later that month, it said.
The four traders said Platts was "reluctant to exclude" the irregular trades because BP and Shell are "significant sources of revenue" to Platts.
Exports of Brent for December are planned at seven cargoes of 600,000 barrels each, unchanged from this month, according to a loading program obtained by Bloomberg News. Shipments for next month will total 4.2 million barrels, or 135,484 barrels a day, compared with 140,000 barrels a day for November, the plans showed.
Bloomberg LP, the parent of Bloomberg News, competes with Platts and other companies in providing energy markets news and information.
In both the alleged 2011 and 2012 market manipulations, the companies violated U.S. antitrust statutes and the Commodity Exchange Act, the plaintiff traders claimed.
In an eight-week Bloomberg News survey conducted this year, commodities traders expressed skepticism about benchmark prices, with 85 traders and analysts, of 270 surveyed, saying they have little confidence in the assessed prices of crude, metals and iron ore.
Crude benchmarks were the least representative in markets where more than five respondents gave answers, followed by oil products, metals and iron ore. Agricultural commodities had the greatest accuracy, according to the survey.
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