Pricing agency Platts defers changes to dated Brent oil benchmark

LONDON: Commodities and energy pricing agency S&P Global Platts will defer changes to its core dated Brent oil benchmark after industry pressure, it said on Wednesday.

The company said it has opened further consultation with the market on the benchmark transition. The changes, among which was inclusion of US crude WTI Midland in the Brent assessment, were announced on Feb. 22.

The European Brent benchmark is crucial to the global oil system because it is used to price more than half the world's physical crude trades. Currently, the benchmark is based on the value of five North Sea crude grades: Forties, Brent, Oseberg, Ekofisk and Troll.

"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," Vera Blei, head of oil markets price reporting at Platts, said in a statement.

"(We) believe the best route forward is to defer changes to the core FOB (free on board) dated Brent complex."

With output in the North Sea basin shrinking, Platts opened a long consultation with the oil market about liquidity issues before announcing the 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.

The benchmark is calculated on a free-on-board basis, without freight costs. Platts had said it would shift to a CIF-based benchmark, where cargoes include the cost of insurance and freight and would also publish an FOB version, whereby it subtracts freight costs from the new CIF benchmark.

"The new Platts proposal for Brent dated and cash (BFOE) assessment is nothing short of revolutionary. It is not surprising that it caused such an uproar," Adi Imsirovic, senior research fellow at the Oxford Institute for Energy Studies, wrote last week.

"The key problem with the proposal is it would likely undermine and possibly destroy the forward Brent market. The whole plethora of derivatives contracts ... would probably change or disappear."

Platts said it will focus meanwhile on incorporating WTI Midland into its existing CIF dated Brent assessment for deliveries from July 2022, as previously announced.

The Intercontinental Exchange (ICE) had previously said the changes were too fast and that it would run dual contracts, letting the market choose between the new CIF dated Brent contract and its FOB version.

Global commodities trader Trafigura has proposed using its Corpus Christi terminal, along with others in the Texas hub, as an FOB loadpoint solution.