* Platts proposes own Brent reforms, following Shell
* Split would be in nobody's favour, says JBC Energy
* Two traders see industry adopting single standard
By Alex Lawler
LONDON, Feb 19 The cash Brent oil market faces a
period of confusion as pricing agency Platts and oil companies
have only weeks to iron out their differences on rival reform
proposals and avoid a damaging split.
Platts on Monday proposed a plan to apply quality premiums
from June 2013 to two crudes deliverable into forward contracts
that help establish the Brent price, differing from new terms
announced previously by Royal Dutch Shell and backed by
The plans are designed to bolster the credibility of cash
North Sea Brent, a benchmark for global oil trade. Critics say
cash Brent is prone to manipulation because it is based on the
dwindling supply of four North Sea crude grades, sometimes
leading to higher prices.
The cash Brent market is also used by the Intercontinental
Exchange to settle Brent futures contracts at expiry each month
and can occasionally influence the price of Brent futures, which
otherwise largely reflect global oil supply and demand patterns.
Oil traders attending annual International Petroleum (IP)
week functions in London were concerned about a period of
uncertainty and of two rival standards emerging.
"The aim of all parties is to improve liquidity and
transparency," said David Hufton, managing director of oil
broker PVM Oil Associates in London. "In due course it will, but
not it would seem without a period of concern, confusion and
A North Sea trader expected the industry to settle on a
single standard to ensure there was no split in liquidity in the
Brent-Forties-Oseberg-Ekofisk (BFOE) forward market, used in
Brent futures contract expiries.
"The big issue is getting agreement so we have liquidity,"
said the trader, who declined to be identified. "Hopefully
Platts can help to resolve this into some sort of alignment
relatively quickly. I think their proposal is fair."
Shell in a statement said: "We are pleased that Platts have
supported all the concepts of our February 8th proposal to
introduce a quality premium as regards BFOE forward
Platts plans to apply quality premiums for Oseberg
and Ekofisk crude from June 2013 - two of the four
crudes deliverable into BFOE forward contracts that help
establish the Brent price.
The firm, a unit of McGraw-Hill which provides
clients with price benchmarks in the energy markets, said it
would consult on its proposals until March 10.
Platts is not planning to introduce quality premiums for
Brent and Forties , the two other crudes making
up BFOE. Shell's proposal includes a quality premium for Brent
as well and begins in May, a month earlier than Platts.
As is, each of the proposals will produce different results,
traders and analysts say. Another North Sea trader expected the
Platts proposal to win out, as participants' price exposure is
"The biggest differences between the two methodologies
concern the historical timing of the calculations used to derive
the value of the escalator and the weighting itself," analysts
at Vienna-based JBC Energy said.
"Unification would be in the market's interest as there is a
danger that two competing systems could split the liquidity of
the BFOE market, which would not be in anybody's favour."