* 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 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
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
"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.