Johan Sverdrup returns as possible Dated Brent solution

Price reporting agency Platts has again opened a consultation on the future of its Dated Brent crude benchmark, this time in conjunction with the Intercontinental Exchange (Ice), and now with Norway's Johan Sverdrup once again being considered as a potential benchmark grade.

In a jointly published white paper, Platts and Ice laid out the two proposals currently being discussed in the market which might solve the problem of dwindling physical volumes underpinning Dated Brent. One involves adding US crude WTI into the basket of North Sea grades used to establish Dated Brent — a proposal which has been favoured by Platts in recent times, if not by the wider trading community. The other involves adding Norway's Johan Sverdrup to the basket — an idea which was previously ruled out by Platts because of the crude's differing quality to Dated Brent's existing light sweet grades.

While the white paper does not express a preference, the number of words devoted to the WTI proposal suggests that it may still be the favoured solution. In March, Platts shelved plans to include WTI and convert Dated Brent into a cif Rotterdam benchmark following an industry backlash. The latest WTI proposal does not specify that Dated Brent would move from a fob to cif benchmark. Instead, it focuses on the other main drawback of Platts' previous idea for including WTI — how to incorporate the crude into the North Sea forward contract.

The white paper appears to have focused on an idea previously floated by trading company Trafigura, namely that loading programmes could be issued for WTI at the US Gulf coast to help maintain the fob nature of the forward, or Cash BFOE, market. Under the Trafigura proposal, holders of a Cash BFOE contract would be entitled to receive cargoes of WTI loading at the US Gulf coast as an alternative to the North Sea grades they are currently entitled to.

"The lack of a loading program in the US Gulf coast no longer appears to be insurmountable," the latest white paper said. "Platts and Ice will seek further feedback and ideas on how an FOB Gulf Coast WTI Midland forward contract would work."

A fob forward contract based in Houston could offer Cash BFOE sellers an extra option for deliveries into Europe, the white paper said. These cif Rotterdam deliveries could then be adjusted for freight to a fob value to compete with the existing North Sea benchmark grades in setting the fob Dated Brent benchmark.

In the latest white paper, no solutions to the various problems with this proposal are offered. Instead, the paper invites the industry to offer its own solutions to the issue of timing, freight costs and regulatory risk associated with including WTI in the North Sea forward contract. The white paper also calls for feedback on the Johan Sverdrup proposal. The problems it sees for this option are less numerous and are largely related to the grade's quality as a heavy sour crude rather than a light sweet grade. But it also asks for comments on the fact that so much Johan Sverdrup is taken to Asia and that so much of it is in the hands of Norway's Equinor.

A deadline of 30 September has been set for the feedback to be received. Platts said itself earlier this year that it had lost the trust of the industry when it announced changes to the benchmark without consultation. The latest white paper suggests that it is now taking a different approach. Rather than announcing a change and opening it up for feedback, it appears to be laying out a series of options — together with a myriad of potential problems — and inviting the industry to help find solutions. And by issuing the white paper in conjunction with Ice, Platts is opening the discussion out far more widely than it has historically done. The volume of trade seen daily in Ice Brent contracts suggests that the future of "Brent" matters to more than just the usual club of North Sea traders in London and Geneva.

Argus competes with Platts to provide oil pricing, including its own equivalent North Sea Dated benchmark, which is a fob assessment.

By Michael Carolan