* Shell's rules start Monday for May and beyond cargoes
* Rules would improve liquidity in North Sea market -Shell
* Platts says will ignore Shell's terms for now
By Alex Lawler and David Sheppard
LONDON/NEW YORK, Feb 8 Royal Dutch Shell
upended the oil world on Friday, unilaterally rewriting
the rules of the market that sets the basis of billions of
dollars of oil worldwide, risking a liquidity-sapping
confrontation with other actors.
In a notice published on its website, Shell said it would
alter its SUKO 90 terms in the so-called Dated Brent market
starting on Monday for cargoes loading in May and thereafter in
a move the oil major said would bolster liquidity in the key
North Sea market.
The SUKO 90 terms are the standard terms for the Dated Brent
market, a complex interlocking market for over-the-counter
forward oil sales contracts and physical oil cargoes in the
North Sea that underlies Brent crude futures.
Dated Brent has come under scrutiny from oil market analysts
as overly reliant on increasingly small streams of North Sea
crude oil production, which critics say leaves the Dated Brent
price open to distortion and manipulation.
Other major participants in the Dated Brent market did not
immediately publicly endorse or reject Shell's proposed changes.
But price reporting agency Platts, which sets the generally
accepted Dated Brent price that underlies oil sales contracts
worldwide, said in a statement it would ignore Shell's new terms
until further notice.
Platts' rejection of Shell's proposed changes risked
fragmenting liquidity in the Dated Brent market, oil traders
said, raising the specter of a repeat of a freeze up of the
North Sea oil trade last seen in 2002 when major participants
failed to agree on changes to the rules of the market.
"It is a serious headache for Platts because they have been
trying to find a consensus solution to the (North Sea) liquidity
problem," said one veteran oil trader.
Officials at Platts, a unit of McGraw-Hill Corp were
not immediately available to comment.
The split between Shell and Platts comes as a steady decline
in North Sea oil output and unplanned oilfield outages have
raised questions about Brent's credibility as a global
benchmark. These small, local supply losses can boost world
Shell said it will apply a new Quality Premium to BFOE
forward contracts - referring to deals in Brent , Forties Oseberg and Ekofisk crudes - the four
crudes that help to set dated Brent, but not to dated Brent
"The new robust and transparent Quality Premium mechanism
will support the Brent benchmark by allowing for more crude
grades and cargoes to be used in establishing the underlying
market price," Shell said in an emailed statement.
"It will therefore contribute towards higher liquidity and
better price discovery."
Some traders who do business with Shell were cautiously
accepting of the major's new terms, which take effect on Monday.
"They look set to improve liquidity. They should make more
cargoes eligible to set the (Dated Brent) price," said one.
Others suggested the terms would reduce the influence of oil
purchases by South Korean refiners that have been blamed for
distorting Dated Brent in recent months.
A free trade agreement between the European Union and South
Korea has made Forties crude more attractive to South Korean oil
refiners, introducing a new element that some traders say has
skewed the relatively small market for Forties crude.
Platts did not rule out eventually accepting Shell's new
terms but said it wants a formal review involving all
"stakeholders" before any changes to the BFOE trading terms take
"While the industry may be exploring alternative concepts,"
Platts said in an email to subscribers on Friday following
Shell's announcement, "Platts assessments shall not reflect
escalators until a formal methodology change has been proposed,
announced, and reviewed with all interested stakeholders, and
The rift between one of the most powerful traders in the
North Sea crude market and the price assessment agency risks
creating a dual market in the North Sea Brent, oil experts said,
and could cut into liquidity if the market becomes fragmented.
In an addition to the SUKO 90 terms posted on its website,
Shell listed a series of quality premiums that will apply
depending on whether a cargo of Brent, Forties, Oseberg or
Ekofisk is delivered into a contract, effective Feb. 11.
Forties is usually the cheapest of the four crudes. North
Sea traders say that at the moment it is the one that most often
tends to be delivered into the contracts.
Shell said it will apply the mechanism to BFOE forward
contracts it trades with its own counterparties using SUKO 90
terms for delivery in May 2013 and later.