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Trillions of dollars of oil contracts and securities are traded around the world

A report commissioned by the G20 group of the world's biggest economies has warned oil prices could be vulnerable to a Libor-style rigging scandal.

According to the International Organization of Securities Commissions (IOSCO), the current system of oil price reporting is "susceptible to manipulation or distortion."

Benchmark prices are compiled by price reporting agencies. The biggest, Platts, says "there is absolutely no similarity" between Libor and oil.??

Trillions of dollars of securities and contracts are based on these oil and gasoline prices.

Both the Libor inter-bank lending rate at the heart of a global rate-rigging scandal and spot oil prices are based on a system of trust. They are, effectively,''unregulated.''

Traders at various banks voluntarily report the prices they pay for oil contracts to Platts, Argus or one of their competitors. The price reporting agency use a number of trades to decide what the benchmark price, quoted to the outside world, should be.

IOSCO said that "this creates opportunity for a trader to submit a partial picture, i.e. an incomplete set of its trades in order to influence the assessment to the trader's advantage."

Journalists working at Platts or Argus are trained to check any figures which appear suspicious or spurious. However, they do not have powers to challenge or investigate banks or individuals responsible for these submissions.

Platts - the biggest player in the market - insists that the competition between it and Argus as Independent Price Reporting Organisations (IPROs) provides "critical distinctions" from Libor which is regulated by a single body, the British Bankers' Association.

IOSCO also criticised a lack of transparency about the way banks compile their submissions. Platts says the data is based on "bids and offers that are tested in the marketplace." However, IOSCO raises the issue that there are insufficient safeguards to prevent collusion between two or more banks as is currently suspected in the Libor scandal.

The G20 had originally asked IOSCO, oil cartel OPEC, the International Energy Agency and the International Energy Forum to contribute to a report into oil price reporting in March.

But, the Global Financial Markets Association (GFMA) - which represents large financial organisations - is also critical of the perceived independence of Platts and its competitors: Argus, OPIS and ICIS-LOR, which also compile oil and gasoline prices for the market.

In its statement, Platts said: "Platts and other IPROs have no vested interest in the markets they cover. We are subscription-based companies and never pay in any fashion for market participants to submit data to our assessment processes."

However, Simon Lewis, chief executive of the GFMA wrote in an open letter to IOSCO: "there is potential for conflicts of interest to arise where PRAs engage in revenue generation, price reporting and news services on oil markets, as incentives may arise to favour those who pay greater subscriber fees or provide greater access to market information."

Mr Lewis called for "barriers or fire walls to minimize contamination risk of information."

IOSCO submitted a report update containing its preliminary findings to the G20 in June. The full report is currently scheduled to be published in time for the G20's next summit in November.