UPDATE 3-Platts proposes changes to Brent benchmark

Mon Feb 18, 2013 12:19pm EST

* Proposes crude price "escalator" from June

* Follows moves by Shell, BP to undertake reforms

* To extend timing of dated Brent assessment from 2015

* Prospect of widening BFOE to more crude grades

By Alex Lawler and Claire Milhench

LONDON, Feb 18 (Reuters) - Oil pricing agency Platts has proposed changes to the way it assesses the Brent oil market following calls from the industry for a sweeping reform to improve liquidity and transparency of one of the world's most important oil benchmarks.

At stake is the credibility of North Sea Brent, the price-setter for billions of dollars of daily trade in crude. The benchmark is based on the dwindling supply of four North Sea crude grades, which critics say makes it prone to manipulation and can lead to higher oil prices.

Platts plans to apply quality premiums for Oseberg and Ekofisk crude from June 2013 - two of the four crudes deliverable into Brent-Forties-Oseberg-Ekofisk (BFOE) forward contracts that help establish the Brent price. These will be considered in the price assessment for dated Brent, the benchmark for physical crude trading worldwide.

The Platts proposal, announced at the annual IP Week industry forum in London, differs from a Feb. 8 announcement of amended trading terms by Royal Dutch Shell, later supported by BP Plc, two big North Sea traders.

"There are various proposals out there. Shell's is a public proposal, but other majors have privately given us their own proposals," Jorge Montepeque, Platts' global director of market reporting, said at a press conference.

"What we have done is hopefully take the best of everyone - something that should be price neutral. We do not want to impact the long-term curve," he said, referring to the structure of the Brent market.

Platts, a unit of McGraw-Hill which provides clients with price benchmarks in the energy markets, is not planning to introduce quality premiums for Brent and Forties , the two other crudes making up BFOE.

Shell, custodian of the terms that govern BFOE trading known as SUKO 90, had said it would apply a premium to Brent crude as well and begin in May, a month earlier than Platts.

Dave Ernsberger, Platts global editorial director, oil, said it was possible two standards - SUKO 90 and another by Platts - could run in parallel and that this would not present a problem for price assessment.

Oil traders were wary of that possibility, however.

"I think that the market will adopt one standard," said a senior trader. "The exposure is to the Platts methodology, so that is the one that normally ends up being dominant."

"What a total mess," another said in reaction to the prospect of two standards emerging.

DATED BRENT CHANGES

Oil traders said Shell's move would encourage traders to deliver the full range of eligible crudes into the BFOE contracts, increasing liquidity. At present, Forties most often tends to be delivered.

The cheapest of the four BFOE crudes - usually Forties because it is of lower quality - sets the value of dated Brent, used to price cargoes in Europe, the Middle East, Africa and parts of Asia.

The forward BFOE and dated Brent mechanisms also underpin Brent crude futures, widely regarded as the standard global price of oil.

Platts also on Monday announced longer-term changes in the way it assesses dated Brent to increase liquidity.

The agency currently assesses dated Brent and related markets using cargoes for delivery in 10 to 25 days. In March 2015, it plans to extend this period to cargoes loading 10 days to one month ahead.

From 2020, Platts proposes to lengthen the period further to cargoes 45 days ahead.

The reforms to BFOE should make it harder for companies to corner the market, analysts say. Over time, Platts said, it will allow a wider range of crudes such as non-North Sea oil to be included.

"This does allow us to consider more crudes for potential inclusion into the Brent assessment process as the years go by," Ernsberger said at the press conference.