* Probe follows more scrutiny of benchmarks post-Libor
* Platts unique in using trading "window" to assess prices
* Agency has long defended its oil assessment process
By Peg Mackey and Alex Lawler
LONDON, May 15 (Reuters) - A European investigation intoalleged price rigging by major oil companies has drawn attentionto leading price agency Platts and the way it sets oil pricebenchmarks.
Authorities on Tuesday carried out a surprise inspection atPlatts' London bureau as well as the offices of Royal DutchShell, BP and Statoil. Officials weresearching for evidence that the firms had distorted pricesreported to Platts in an attempt to influence the cost of oil.
The move follows more scrutiny of financial benchmarks byauthorities since the Libor rigging scandal. Statoil said thesuspected violations were related to the Platts price assessmentprocess and may have been going on since 2002, when oil tradedat just $20 a barrel, a fifth of its price today.
For more than a century Platts, a unit of McGraw-Hill, has provided clients with price benchmarks set byreporters for opaque energy markets. As the undisputed leadprice reporter, its assessments are used to close physical andderivative deals worth billions in a $2.5 trillion market.
"Platts is the main price reference for the physical oilmarket," said Olivier Jakob, oil consultant at Petromatrix inZug, Switzerland. "So if you were to close Platts tomorrow, youwould have a very big problem."
Now the methodology designed by Platts to assess the valueof oil is under scrutiny. One question may be whether theso-called Platts "window" or market-on-close (MOC) system - adaily half-hour period in which it determines prices through aseries of bids, offers and trades - amounts to selectivedisclosure.
Platts' smaller rivals in the price reporting business -ICIS, a unit of Reed Elsevier and privately-held ArgusMedia - do not use a window-based process to assess prices.Argus said it has received no recent inquiries from Europeanregulators. ICIS could not immediately be reached.
"The MOC process has faced criticism because it concentratesprice discovery in a small assessment time window, perhapsmaking it more prone to potential manipulation," said IHS Energyanalyst Roderick Bruce.
"Other pricing techniques employed by price reportingagencies, such as volume-weighted averages, have also come underscrutiny in recent months."
Platts declined to comment on Wednesday but has already saidit disagrees with the suggestion that it has too much power andthat its focus as an independent price reporting agency is tomaintain the integrity of its assessment processes and theprices they produce.
Complaints about the process do not seem to have diminishedwhat has been an extraordinarily lucrative part of McGraw Hill'sbusiness. The company's commodities-related revenues -- largelyPlatts -- have surged by more than 40 percent in two years to$489 million in 2012, according to an SEC filings.
It cited Platts' "market data and price assessment" ashaving fuelled last year's 17 percent growth. A series ofacquisitions - including consultants Bentek Energy and SteelBusiness Briefing in 2011 - also boosted revenues.
Thomson Reuters, parent of Reuters news, competeswith Platts, Argus and ICIS in providing news and information tothe oil market.
THE WINDOW
A Reuters reporter observed the operation of the window lastyear at Platts' London offices and was briefed by a senioreditor on the company's methods.
Companies post bids, offers and trades on Platts GlobalAlert, the company's screen-based news and pricing network.Reporters use phone and instant messenger to gather additionalinformation.
In London, the window usually starts at 4 p.m.
Then, reporters huddle over computer screens to evaluatedata - price, volume, delivery terms and specifications - on thebasis of Platts' methodologies to set values, a process that cantake up to two hours.
The MOC made its debut in Asian oil trading in 1992 and inEurope in 2002. Prior to that, Platts produced its dailyassessments from a weighted average of deals done.
"There is an element of precision that has emerged," DaveErnsberger, Global Editorial Director of Oil at Platts, toldReuters during the demonstration of the system last year.
"We've moved from a world of opinion to a world of fact."
Platts' influence in the world oil market has grown overtime, prompting critics to say it's too powerful - acting as arule-setter and barring some participants from the window.
For example, months before Lehman Brothers went under duringthe global financial crisis of 2008, oil traders voiced concernabout Lehman's viability. Platts barred the bank from tradingoil contracts on its system, a procedure known as "boxing."
Today, Platts routinely boxes companies temporarily for suchthings as shipping technicalities or failure to play by the agency's informal trading rules, reducing their influence in themarket and, say critics, making Platts unusually powerful.
"If Platts blacklists you, you're out," said an oil marketsource, who declined to be identified. "We hate to be boxed."
Platts has a stringent process for letting new companiesjoin the process of contributing to price assessments.
"Lehman showed Platts they were right to protect thesanctity of their window process and the counterparties who maynot know better," said a senior oil executive at a major companywho requested anonymity. "But what happens if they are wrong?"
The publisher has 240 companies that take part in itsassessment process and says many more are lining up to join.
Platts' Ernsberger, speaking last year, said its discretionover who participated was justified to ensure the system workedwell: "Platts is not where you prove yourself," he said.
"You have to have a track record: trading wherewithal tounderstand the methodology and logistics."
BRENT REFORMS
Another example of Platts' power arguably occurred in Marchover plans to reform the Brent oil benchmark, the world's mainprice reference for trading cargoes of crude oil.
Shell proposed introducing quality premiums to encouragemore types of crude to be delivered into Brent forwardcontracts, an idea backed by BP. A few weeks later, both endedup agreeing to a counter-proposal by Platts, which was differentin some respects to the changes the oil firms had sought.
Platts has faced scrutiny before. More than a decade ago,U.S. federal energy regulators in 2002 investigated the rolepublished natural gas indices played in the California powertrading scandal and price spike. They determined that tradershad submitted false prices to publishers like Platts.
While power traders eventually adopted benchmarks based ontrades conducted on the IntercontinentalExchange fortrading and price discovery, many natural gas contracts arestill settled on published indexes like Platts' Gas Daily.
Oil traders on Wednesday said there was no sign of theinvestigation impacting on activity in the window and Platts'introduction of the quality premiums was working well.
"They are everyone's favourite enemy. We can't live withthem, but we can't live without them either," a senior source ata trading company told Reuters. "The industry created a rod forits own back by going down the road of having a journalisticassessment many years ago."
