London — How much does a barrel of oil cost? With billions of dollars at stake, sometimes the answer depends who is doing the asking.
The most visible answer is the figure flashing up on futures screens across the financial globe.
In reality that is merely the top of a pricing pyramid based on a subtle exchange of information between traders and reporters tracking physical crude market deals.
The army of agency reporters are the oil industry's sherpas, delivering data from point to point for paying clients, some of whom are commodity investors, some of whom seek fuel for physical delivery.
The two leading price assessors are McGraw-Hill Companies Inc . unit Platts, dating back to 1909 and the infancy of the U.S. oil industry, and London-based, privately owned Argus Media Group.
Argus has gathered its data since 1979, and like Platts assesses prices, publishing the results as a differential to a benchmark, although the two use different methods to reach their conclusions.
“We get the information, we cross check that information, we throw out things that are wrong, we go back to the companies to check it,” said Adrian Binks, chief executive officer of Argus Media Group.
Mr. Binks has been in the market eye since the announcement last month that the world's biggest exporter Saudi Arabia would use an index compiled by Argus to price crude sailing to the world's biggest market the United States.
At rival Platts, Jorge Montepeque, global editorial director for markets and price assessments, has frequently been the centre of market debate over his reforms of pricing methodology.
“We are tasked to assess and write truthful and accurate events,” Mr. Montepeque said. “Our belief is that if we publish prices that are representative of market value, then we are offering the market a valuable tool.”
Reporters at Platts run a daily electronic “window” for buyers and sellers to make bids and offers publicly, and then publish a market-on-close (MOC) value.
The window became such an institution within the market that a decision to move it forward by an hour effectively shortened traders' working days, to widespread relief.
Since 1992 Platts has published its MOC data based on the principle that “price is a function of time,” according to its methodology, “to reflect transactable values prevailing at the respective market close on a normal working day.”
Platts also provides its cash West Texas Intermediate (WTI) MOC assessment as the benchmark for oil pricing on the New York Mercantile Exchange and its oil futures contracts.
Thomson Reuters competes with both Platts and Argus in providing information to the commodities markets.
The Saudi move to the Argus index came after long-held dissatisfaction with the main U.S. futures benchmark, which until now had been integral in setting prices for Gulf barrels.
“It's a major coup for Argus, the result of many years' hard work,” said Argus chief executive for the Americas Euan Craik.
In March of this year, Platts launched its Americas Crude Marker (ACM), spurred in part, the company said, “by the apparent ongoing inability of (WTI) prices ... to fully represent U.S. Gulf Coast sour crude economics.”
“The story of WTI showing erratic behaviour has been around a long time,” said Dan Tanz, vice president for editorial at Platts. “We all agree that Aramco made a sensible decision to move away from WTI into a sour crude.”
Analysts said the differing Platts and Argus assessment methodologies both seek to address and eliminate market manipulation strategies.
“Platts adheres to rigid methodologies -- things have to be done their way ... Argus is more interested in how the market is actually doing it, and then adjusts that to a common basis,” said Liz Bossley at London-based Consilience Energy Advisory Group.
“Platts is more of a science, whereas Argus is more of an art,” said Ms. Bossley.
