LONDON—Trafigura has proposed using its Corpus Christi, Texas, terminal and the wider hub to allow pricing agency Platts to include U.S. crude oil in its Dated Brent benchmark without restricting trade.
The European Brent benchmark is crucial to the global oil system as it is used to price more than half the world’s physical crude trades. Currently, the benchmark is based on the value of five North Sea crude grades—Forties, Brent, Oseberg, Ekofisk and Troll.
However, with output in the North Sea basin shrinking, S&P Global Platts, which sets the daily benchmark, opened a long consultation with the oil market about liquidity issues before making a surprise announcement last week.
A move to include U.S. crude WTI Midland in the benchmark was widely expected, but a proposal to change shipping standards for the whole index and Midland within the assessment has raised concerns about loss of cargo value and destination flexibility.
Currently the benchmark is calculated on a free-on-board (FOB) basis, without freight costs. Platts says it will shift to a CIF-based benchmark, where cargoes include the cost of insurance and freight. It will also publish a FOB version netbacked from the new CIF benchmark.
In a letter sent to market participants and seen by Reuters, Trafigura, one of the biggest traders of U.S. oil, proposed issuing a WTI Midland loading program on a FOB basis from Corpus Christi, where it co-owns a large terminal loading around 500,000 to 600,000 barrels per day (bbl/d). The hub has other loading terminals that can export around 2 million bbl/d combined.
“The market is used to a FOB delivery mechanism...and as such this allows this relationship to continue. A FOB program is far more transparent than a CIF system,” the letter said.
Under Platts’ new system traders would need to pay additional shipping costs from the U.S. to Rotterdam, a major European oil hub, before the cargo continued its journey elsewhere.
The changes are due to take effect beginning in July 2022 and would impact the valuation of every second barrel traded in the world. Brent futures are also linked to dated Brent.
Trafigura’s proposal would allow the company loading the oil to decide what to do with it, including bidding or offering it on a CIF basis if they want.
“CIF Midland can still trade using exactly the same basis as was intended, and those that take delivery of FOB Midland... will own a barrel they can market globally, and elect to offer in the dated window if that makes the most sense. Whereas CIF cash is basically a destination restricted barrel.”
Trafigura and Platts declined to comment.
Platts apologized this week for surprising the market and said it would hold workshops in the coming weeks to iron out details.
“The suddenness of the announced changes and the lack of further consultation have caused anger and frustration for some and we’re sorry for that,” Vera Blei, global director of oil markets, said during a workshop on March 3.
Separately, the Intercontinental Exchange has proposed running parallel contracts—a FOB version of the new Dated Brent contract along with the new CIF Dated Brent.
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