The global crude oil benchmark Dated Brent is set to change once again this November as S&P Global Platts, the benchmark’s custodian, introduces trade in North Sea grades delivered on a CIF Rotterdam basis.
Change is by no means new to the benchmark; it has evolved constantly over the last two decades, essentially reflecting the decline of North Sea oil production. The basic problem is ensuring liquidity i.e. that there are enough physical, tradeable cargoes of oil. If volumes fall too far, the physical market becomes increasingly susceptible to manipulation.
The original system, developed in the 1980s, was based on trade in crude from the prolific North Sea Brent/Ninian system, but cargoes of the actual Brent Blend are now few and far between, with the system now producing only around 100,000 b/d.
The solution has been the steady addition of North Sea grades to the benchmark – in 2002 Forties and Oseberg, the first Norwegian crude to be included, then Ekofisk in 2007 and most recently in January 2018 Troll. The inclusion of new crude grades is not simply about volume, but also supply and demand-side diversity. New grades tend to expand the number of companies with equity in the system and the range of buyers. This too is a safeguard against manipulation.
A second means of expansion has been to extend the loading dates of crude cargoes that can be included. This has been changed from 7-15 days to 10-21, then to 10-25 in 2012 and finally…