BP, Shell review Platts changes to Brent oil benchmark

Mon Mar 18, 2013 9:02am EDT

Related Topics

* Platts detailed changes to Brent assessment on Friday

* Platts plan, Shell terms differ in some respects

* Early resolution hoped for to avoid market paralysis-PVM

By Alex Lawler

LONDON, March 18 (Reuters) - BP Plc and Royal Dutch Shell on Monday assessed changes announced by oil pricing agency Platts to the way it assesses the Brent oil market, and had yet to decide on any endorsement of the new terms.

The prospect of two standards has led to some concern about a split in liquidity in the market, which could damage the Brent-Forties-Oseberg-Ekofisk (BFOE) benchmark rather than fix it.

"We have yet to see Shell's reaction, but it is hoped that agreement can be reached soon to avoid any confusion and consequent paralysis of BFOE trading as a result," said Tamas Varga of London-based oil brokers PVM.

Platts, a unit of McGraw-Hill which provides clients with price benchmarks in the energy market, on Friday announced changes to the way it assesses Brent. These differed from new trading terms earlier detailed by Shell and backed by BP.

BP was still reviewing the Platts announcement, company spokesman Robert Wine said on Monday. Shell said on Friday said it would consider the Platts announcement and respond in due course.

Brent, based on four types of crude from the North Sea, sets the price of billions of dollars of daily oil trade. Since these are in dwindling supply, critics say the smaller market is prone to manipulation and can lead to higher global prices.

Platts on Friday said it would apply quality premiums for Oseberg and Ekofisk crude delivered into BFOE forward contracts that help establish the Brent price from June 2013.

The tweak, Platts hopes, will offer an incentive for more deliveries of bettter-quality Oseberg and Ekofisk into BFOE contracts, effectively increasing the supply of oil underpinning the market. At present, Forties most often tends to be delivered as it is of lower quality and usually the cheapest.

While the market in general appears to agree on the idea of quality premiums and a June 2013 start, differences between Platts and Shell include the size of the premium applied to Oseberg crude, whether to apply one to Brent crude and how much past price data to use in calculating the premium.

Thomson Reuters, parent of Reuters news, competes with Platts in providing news and information to the oil market.

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