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UPDATE 2-Shell endorses Platts changes to Brent oil market
March 20, 2013 / 12:37 PM / 5 years ago

UPDATE 2-Shell endorses Platts changes to Brent oil market

* Shell’s revised trading terms move into line with Platts

* Effort aimed at bolstering Brent oil benchmark

* No immediate comment from BP which backed Shell plans

By Alex Lawler

LONDON, March 20 (Reuters) - Royal Dutch Shell has endorsed changes announced by oil pricing agency Platts to the way it assesses the Brent crude oil market, avoiding a split which could have weakened the benchmark used to set oil prices globally.

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

Shell and Platts, a unit of McGraw-Hill, had put forward different reform proposals and the prospect of rival standards led to concern about a split in liquidity which would damage the Brent benchmark rather than fix it.

With effect from Wednesday, Shell updated its “SUKO 90” terms and conditions for Brent oil trading to bring them into line with plans unveiled on Friday by Platts, which provides clients with energy price benchmarks.

“Shell has further updated its SUKO 90 terms and conditions to reflect the consensus reached in the market since we published our proposed changes on 8 February 2013,” Shell said in an emailed statement.

BP Plc, which had backed the Shell proposals, and Platts could not immediately be reached for comment. However, North Sea traders had expected the market to adopt the Platts proposals. “My reading is we’re now fully aligned,” said a person close to the process.

QUALITY PREMIUMS

The Brent reform arises as the efficiency and transparency of a wide range of other benchmarks in financial and commodity markets have come under the spotlight.

In oil, part of the problem is that traders most often deliver the cheapest and lowest quality of the four crude streams into the Brent-Forties-Oseberg-Ekofisk (BFOE) forward contracts that help establish the price of dated Brent, which is used to price oil around the world.

Platts on Friday said it would apply quality premiums for Oseberg and Ekofisk crude delivered into BFOE contracts from June 2013. The buyer will pay the premium to the seller.

The tweak, it is hoped, 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.

Shell, the custodian of the SUKO 90 terms which govern trading of BFOE contracts, speeded up industry talks on addding quality premiums with its Feb. 8 revision to the contract terms. Platts responded with its own proposals on Feb. 18 and consulted the industry for the next four weeks before announcing its changes on Friday.

Until Shell’s latest changes to SUKO 90, Platts and Shell differed on issues including the size of the premium to apply to Oseberg crude, whether to apply one to Brent crude and how much past price data to use in calculating the premium.

Both now set quality premiums for Oseberg at 50 percent, draw on two months of price data weighed in the same way and - as Platts had proposed - do not apply a premium to Brent.

Forward BFOE and dated Brent underpin Brent crude futures , increasingly seen as the standard global price of oil.

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

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