Platts angers market with delivered Dated

A decision by price reporting agency Platts to overhaul the way that Atlantic basin crude is priced has blindsided the market and caused widespread complaints.

Platts had been expected last week to unveil plans to add WTI to the basket of North Sea crudes underpinning its Atlantic basin benchmark Dated Brent. But rather than finding a mechanism to fit a delivered-Europe WTI price into its fob North Sea marker, it has converted Dated Brent into a delivered-Rotterdam benchmark to match the way WTI trades in Europe. Dated Brent — and its Argus equivalent North Sea Dated — is currently based on the lowest priced of five grades — Brent, Forties, Oseberg, Ekofisk and Troll — loading at their North Sea terminals in the coming month. Platts now proposes to base Dated Brent on the lowest priced of the five North Sea grades or WTI arriving at Rotterdam in the coming month. The change will take effect for cargoes arriving in July 2022 onwards.

Complaints about the move have been numerous. The change to a delivered benchmark has huge implications for global crude prices. Delivered prices include the cost of freight and are almost always higher than the cost of crude at the load point. A company with a long-term Dated-linked contract to lift crude on a fob basis could now be exposed to spikes in freight rates through a cif Dated Brent.

Changes will be needed to the complex of derivative contracts built around Dated Brent. This includes contracts already trading. Ice Brent futures and related Dated-to-frontline contracts are available as far out as 2029. The market is watching to see how Ice will respond. Ice Brent futures maintain a link to Dated Brent and the forward market through the Ice expiry mechanism. Ice will need to decide whether to follow Platts in converting Ice Brent to a cif price or find a new mechanism to maintain its present status. "The derivative market has to converge with the physical," Platts said. "It is up to Ice how they go through that process."

Ice suggested the proposal to add WTI "would represent the most radical change in the Brent market thus far" and would require more careful consideration before being implemented in a letter to Platts on 12 February, before Platts announced its even more radical plan to launch a delivered benchmark.

Major changes to the North Sea forward market — or the Cash BFOE market — will also be needed. This market uses a set of trading terms set out in Shell's Suko 90 contract. Platts is effectively proposing to rewrite this. It will hold a series of workshops with the industry this year to establish what changes will need to be made to contract terms. Some North Sea participants have pointed out that it is not for a media company to involve itself in contract terms.

The change has tax implications. Platts Dated Brent is one of three benchmarks used by UK authorities to calculate tax rates in the oil industry. Changing it to a delivered price means that Dated Brent is no longer comparable with the other two markers, potentially leading to tax rule changes. Dated Brent is used by tax authority codes around the globe. The change has implications for other industries too, with "Brent" — whether the Ice or Platts version — underpinning global gas and LNG deals. Existing contracts may need to be rewritten.

Objections to the inclusion of WTI in Dated have not gone away. The lack of loading programmes, the variable quality of the crude and its reflection of US rather than European fundamentals remain factors. The proposals will lead to WTI setting the European marker as the lowest priced of the six crudes for around 45pc of the time, Argus data suggest.

Argus competes with Platts to provide oil pricing, including its own equivalent North Sea Dated benchmark, which is not moving to a cif basis.