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Saturday, March 13, 2021

Something Fishy Going On With Brent? -- Pricing Agency Platts Defers Changes To Dated Brent -- Industry Pushback -- Re-Posting As A Stand-Alone -- March 3, 2021

Added:

Brent:

From the Bloomberg article:

How do you measure the value of the world’s most important commodity?

It’s a conundrum that brought uproar in the oil market over the past few weeks after S&P Global Platts, the company that publishes the world’s key crude price, announced on February 22, 2021, that it was going to radically change the very nature of that benchmark, known as Dated Brent.

Just nine days after announcing its ambitious overhaul, which had been meant to begin in June 2022, Platts was forced to apologize to the market for the suddenness of the move. A week later it went a step further: the changes would be shelved for an as-yet-undefined period.

“It is not surprising that it caused such an uproar in the market,” Adi Imsirovic, senior research fellow at the Oxford Institute for Energy Studies and an experienced oil trader, said in a paper on the reform. The proposal was “nothing short of revolutionary.”

And more:

While Platts may have hit pause on the plan, what the saga really highlighted was a more fundamental problem facing the global oil market. Volumes of Brent oil -- which gets its name from a Scottish oil field whose production peaked in the 1980s -- have slowed to a trickle. Platts widened what constituted ‘Brent’ to include four other grades -- Forties, Oseberg, Ekofisk and Troll -- but even those are slowly running out.

And then this:

With fewer barrels to trade, the decline poses a threat to the reliability and credibility of a measure that affects everything from crude oil transactions, to long-term refining and drilling contracts. Gas supply deals and a whole host of derivatives -- even Brent crude futures -- all rely to varying degrees on that one number, published every day some time after 4:30 p.m. in London.

Platts’s idea was radical: add American crude into the mix and base its flagship oil price assessment on the trading of delivered cargoes, a move that effectively adds the cost of shipping to the price. Until now they have been based on the prices of barrels as they are loaded.

Bottom line: a most incredible story. It's behind a paywall, but there may be ways for folks to get to the article, and it's very likely Rigzone will post the story next week. 

For me this was a most satisfying story on so many levels.

2 comments:

  1. Too bad they wimped out. Delivery basis (not loading) into Northern Europe makes most sense. Adding WTI (the substance, not the financial meaning of the word) does too, but to work properly, pretty much requires the change to delivery basis, not loading basis. I like it best really. Similar to WTI delivery basis. But WTI Cushing (really "DSW", as the oil does not need to come from WT fields) is a problem because of being landlocked.

    OK has no sea coast and is prone to big diffs when pipes are bottlenecked. Brent is the true world price. They just need to fix the amount issue. Adding WTI (substance) into Rotterdam is the simplest proposal. Could add Libyan or Nigerian crudes also, but I'd go with non-OPEC.

    ReplyDelete
    Replies
    1. "Land-locked" has become a meme and is losing relevance. Shipping WTI all the way to Rotterdam vs pipeline from the Permian to the Gulf Coast?

      The bigger issue here: North Sea is (close to) dead. Producing less than the Bakken? And according to some folks the Bakken is becoming irrelevant.

      From Bloomberg:

      Volumes of Brent oil -- which gets its name from a Scottish oil field whose production peaked in the 1980s -- have slowed to a trickle. Platts widened what constituted ‘Brent’ to include four other grades -- Forties, Oseberg, Ekofisk and Troll -- but even those are slowly running out.

      Repeat: but even those are slowly running out.


      It's coming down to WTI (free market); Saudi (controlled, but constrained by free market); and Russia (confused).

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