Platts and ICE launch consultation on Brent benchmark change
22nd July, 2021|Radi Khasawneh
The two companies are inviting comment from market participants on changes to the deliverable grades for the Brent complex
S&P Global Platts (Platts) and the Intercontinental Exchange (ICE) have released a joint white paper and launched a consultation period with clients and market participants to decide on changes to the components of the Brent complex. The consultation period will run until September this year.
ICE hosts the widely traded ICE Brent Crude Oil Future, while Platts oversees the Dated Brent benchmark used to value half the world’s oil. The move comes after Platts paused previously announced plans to reform its benchmark earlier this year. The company had planned to convert the loadings assessment at terminals around the North Sea from free on board (FOB) to a cost, insurance and freight (CIF) Rotterdam delivered contract. Rotterdam is Europe’s largest oil trading hub.
The effect of the change would have been to shift more responsibility of delivery to the seller, but after market feedback the plans were put on hold in March this year. In a release issued at the time, Platts said that it would incorporate West Texas Intermediate (WTI) Midland into the separate CIF Dated Brent benchmark for deliveries from July 2022.
Both the new options for additional crude streams would be FOB contracts – Norwegian Johan Sverdrup oil under the Forward Brent contract, and US WTI Midland on an FOB USGC basis (see graphic).
“Our goal for this consultation is to facilitate a discussion with market participants covering all of the key issues which need to be addressed so that we can strengthen the Brent complex for decades to come,” said Jeff Barbuto, global head of oil markets at ICE in a statement.
The widely used benchmark has had to add streams over the years as UK oil production fell, adding deliverable grades from neighbouring oilfields in 2002, 2007 and 2017. The aim was to have at least a cargo a day of benchmark grade oil was available for delivery, the white paper said. Maintaining the quality and consistency of the light, sweet crude eligible for inclusion has also required changes over the years, and this would be a relevant consideration for the inclusion of the large Johan Sverdrup stream (due to its gravity and sulfur levels). Meanwhile, the inclusion WTI Midland on a FOB basis would also present some challenges.
“While other possible solutions have been suggested by industry participants, a solution involving Johan Sverdrup or WTI have proved by far the most widely discussed,” said Joel Hanley, global director, crude and fuel oil markets at S&P Global Platts in an emailed statement. “We undertook this joint white paper with ICE and an additional market consultation process to get the widest, deepest market view possible on how best to take the Brent Complex forward. Benchmarks must evolve as the marketplace evolves.”
