US energy pricing agency Platts defers Brent oil benchmark changes amid widespread concern

Friday, 12 March 2021
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US energy pricing agency S&P Global Platts has deferred changes to the dated North Sea Brent oil benchmark, which has an influence on other markets including long-term LNG, after industry pressure and at a time of concern over US oil industry retreat because of restrictive government policies.

The US pricing agency said it had opened further consultations with the market on the benchmark transition.

The changes, among which was inclusion of US West Texas Intermediate Midland crude in the Brent assessment, were announced on February 22 and were due to take effect from July 2022.

However, analysts note that the North Sea Brent benchmark is crucial to the global oil system because it is used to price more than half the world’s physical crude trades.

Platts also produces the key North Asia spot LNG price, the Japan-Korea Marker price, known as the JKM.

Currently, the Brent benchmark is based on the value of five North Sea crude grades: Forties, Brent, Oseberg, Ekofisk and Troll.

Platts said it does not have a fixed timeline to discuss alternatives, such as one put forward by global commodities trader Trafigura.

“Next year, we see North Sea production falling below one cargo per day in the BFOET benchmark grades so timeline is there any way in the fundamentals,” said Platts.

Global commodities trader Trafigura has proposed using its Corpus Christi terminal, along with others in the Texas oil hub, as a free-on-board load-point solution.

Platts has asked law firm Fieldfisher to structure the working group process, the first time it has hired external counsel for a consultation.

Oil-producing nations in Africa, Asia and the Middle East have also expressed concern at Brent pricing being attached to US oil at a time of the current Administration's fierce opposition to the hydrcarbons industry.

Prior to the February announcement, Platts had held a long consultation with the oil market on Brent changes.

A move to include WTI Midland in the benchmark was widely expected, but a proposal to change shipping standards for the whole index and Midland within the assessment has raised concerns about loss of cargo value and destination flexibility.

Analysts added that a key problem with the proposal is it would likely undermine and possibly destroy the forward Brent market and derivatives contracts would change or even disappear.

The Intercontinental Exchange (ICE), one of the main trading platforms for Brent derivatives, had previously said the changes were going forward at too fast a pace.

ICE also said it would run dual contracts, letting the market choose between the new cost, insurance, and freight (CIF) dated Brent contract and its FOB version.

Vera Blei, Head of Oil Markets Price Reporting, at S&P Global Platts, said that Platts takes its stewardship of the Dated Brent benchmark and its on-going collaboration with the industry very seriously.

“Since changes to the complex were announced in February, we received extensive feedback from market participants in support of introducing WTI Midland into the basket but there is not agreement on how it would be fully reflected into the wider Brent complex,” explained Blei.

“We have listened to this feedback and believe the best route forward is to defer changes to the core FOB Dated Brent complex and to keep Dated Brent and all related assessments, including Cash BFOE, unchanged on an FOB basis,” she explained.

“This allows the opportunity for a widespread consultation with market participants so that we act on constructive suggestions to safeguard the future of the benchmark,” she stated.

Platts said it would continue to focus on incorporating Midland WTI into its existing CIF Dated Brent assessment for deliveries from July 2022, as previously announced.

This step is aimed by Platts at bringing transparency to the pricing of the existing basket grades combined with WTI Midland crude on a delivered basis, which is the way WTI Midland typically trades when delivered to the market.

Platts will also continue with its plans to form an industry working group to consult on revised terms and conditions for voluntary use to reflect the inclusion of WTI Midland in the Brent complex.

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