WTI Midland crude proposed as Dated Brent component from June 2023
Quantum Commodity Intelligence – US WTI Midland crude oil will be reflected in the North Sea Dated Brent benchmark assessment from June 2023, price reporting agency (PRA) S&P Global Platts said in a statement Monday, subject to confirmation.
The announcement is likely to end the fiercely debated topic of whether the light sweet WTI Midland, or Norway’s heavier Johan Sverdrup, should be added to bolster the falling volumes that underpin the assessment, which is the world's primary benchmark for international crude pricing.
“Following a period of extensive market consultation, S&P Global Platts proposes to reflect cargoes of WTI Midland crude oil in its Dated Brent crude oil benchmark, with effect from June 2023 cargo deliveries,” said the statement, adding that the inclusion will extend across the Brent complex, including Cash BFOE.
Platts also proposed amending all Dated Brent and cash BFOE cargo sizes to 700,000 barrels from 600,000 barrels, in line with WTI Midland, while cash BFOE will include FOB WTI Midland cargoes on a freight and time-adjusted basis.
The debate between the two grades had come down to preserving Dated barrels solely in the North Sea and introducing Johan Sverdrup, despite the quality mismatch, or add in WTI, including the geographical complexities added by the effective inclusion of the US Gulf.
BP, along with trading houses such as Trafigura and Vitol had publicly declared for WTI Midland, while a number of incumbent North Sea producers were said to favour Sverdrup.
“Since launching a formal consultation on July 21, 2021, Platts has received growing and widespread support for the inclusion of WTI Midland in the Brent complex,” said Platts.
At 27-28 API gravity and 0.8% sulfur, Johan Sverdrup is heavier than the existing suite of Dated Brent crudes, although it is similar in sulfur content.
Compromise
In February 2021, Platts proposed adding WTI Midland but crucially, amending the basis of the Brent market from FOB North Sea to CFR Rotterdam.
However, changing the contract to CFR Rotterdam was roundly rejected by the wider market, including the Intercontinental Exchange, which hosts the ICE Brent futures contract.
Platts and ICE have since worked together on a solution for the North Sea, along with third-party consultants, in what is expected to be a more acceptable compromise solution in tackling falling North Sea volumes.
The North Sea basket of crudes comprises Forties with a maximum production of 300,000 bpd, Ekofisk 290,000 bpd, Troll 170,000 bpd, Oseberg 135,000 bpd, and BNB accounting for 70,000 bpd.
Output typically falls during maintenance, particularly in the summer, which can significantly impact on liquidity and pricing of the key benchmark.
ICE Brent futures are settled against the Brent Index, which in turn is calculated from trade data from the BFOE cash market, a derivative of the Dated Brent physical market.
