Friday, August 24, 2012
TOTSA TOTAL OIL TRADING SA Page 2 of 10World Trade Center 1
10, route de l’Aéroport
Case Postale 276
CH -1215 Genève 15 Aéroport
Q1 Are you or your company currently subscribers to the services of PRA(s)? If so, how wouldyou rate the overall quality of the work being carried out by the PRA(s)?TOTAL is a subscriber to the major PRA services for the energy markets (oil, gas, coal, power,CO
, and biofuels). The work done by the PRAs can generally be considered conscientiousand professional. However, the published prices do not always represent those of the marketwith the same degree of accuracy. This heterogeneity exists both within individual PRAs andbetween PRAs. As well, the quality of the reporting is not always consistent over time. Finally,while certain PRAs have pricing processes that are reproducible using the underlying data,
others do not (the principal difference being the use of “judgement” that may bias prices
awayrather than toward the market).Q2 Please provide information on the impact of PRAs on physical oil and oil derivatives markets.Please support your comments with data on the volume and value of the related physical oil and oilderivatives business you are aware of, which is dependent on PRA benchmark prices (where possiblebroken down into the following categories: OTC; OTC cleared; or exchange-traded)
Are the prices of all oil transactions linked to PRAs?
Oil market pricing (crude or products) links sales to representative price references, includingPRA prices (75% - 80% of deals), futures markets such as NYMEX or ICE (15% to 20% of deals), or to producer country official selling prices (10% of crude sales).
Which PRA prices dominate the market?
Very approximately, for all transactions linked to PRA prices, Platts represent 90% to 95% of transactions on crude 85% to 90% of transactions on products, and 85% to 90% of OTCderivative transactions. The remaining share is covered by Argus and other PRAs which arepresent in niche markets.Q3 What are the impacts of PRA processes on oil trading markets, physical and/or derivatives?In your answer please comment on the quality of PRA processes, their strengths, as well as thepotential impacts of any perceived weaknesses.Traders, buyers, and marketers depend upon the PRA prices as a source of marketreferences for on-going transactions. Oil market players contribute to the price assessmentprocess by reporting their deals (ensuring the assessed prices take them into account). Thisinterdependence between the PRAs and the oil market players defines the price discoveryprocess.Platts (the dominant price reporting agency) imposes a methodology that does not furnish amarket price (based
on the day’s prices) but rather a price to the market.
Sometimes the criteria imposed by PRAs do not assure an accurate representation of themarket and consequently deform the real price levels paid at every level of the price chain,including by the consumer. The difference in methodologies between Platts and Argus is thegreater integration of the shape of the forward price curve by Platts than by Argus (or ICIS or APPI, etc). Accordingly, when the market is in strong backwardation, Platts spot prices arelower than the rest and in contango they are higher.Inaccurate pricing is not simply an issue regarding the pricing of OTC contracts. Margins for refiners and retailers as well as prices for end-users are directly impacted by erroneous prices.