Written by Florence Tan, Alex Lawler, Robert Harvey
LONDON (Reuters) – Big energy merchants who trade oil cargoes, the basis of the Brent crude index, are using opaque provisions to shift shipments from Europe to the United States, raising questions about whether reforms to the oil price index have been successful. I have some doubts.
The most important benchmark across commodity markets, Brent is used to price over 60% of the crude oil traded around the world and underpins crude oil futures. Its value influences the fuel prices consumers and businesses pay.
Analysts said at the time that the addition of U.S. oil to the benchmark in 2023 could limit the range of trades that could distort Brent prices. But the route change has raised new concerns in the market about how well benchmarks reflect supply and demand.
Platts, a unit of S&P Global Commodities Insights, last year allowed U.S. WTI Midland crude delivered to Europe to be included in its Brent price assessment, known as dated Brent. The move was aimed at boosting liquidity as supply from the mature Brent oil field and other oil fields in the North Sea declines.
But in recent months, some WTI shipments traded for delivery to Europe through Platts’ system, known as the Window, never arrived, at least five people involved in the trade said and publicly spoke out. He declined to be identified because he is not authorized to do so. No subsequent route changes have been reported.
U.S. oil trading companies used a clause in the all-commodity Platts Act called a bookout to divert oil from Europe to Asia or keep oil in the United States.
Traders and industry analysts said cargo sales and subsequent rerouting could affect prices, including for expired Brent, by creating the perception that demand in Europe is stronger than it actually is.
However, Reuters was unable to establish a definitive link between cargo trading activity and prices during this period.
“The problem is that traders are monitoring the transactions being delivered and counting the barrels that arrive in Europe. These barrels have a Brent date set on them.” , said Adi Imsilovic, a trader who runs the consultancy Surrey Clean Energy.
“Then you book those deals and all those barrels that you thought you had a lot of and that were already priced for the date suddenly disappear.”
Platts has not received any complaints about this practice, and says it has changed its sales criteria from a cost-of-delivery-insurance-freight (CIF) basis to a free-on-board (FOB) basis, where a “small number of shipments” can be shipped anywhere. He said he was aware of it. .
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“These contract amendments are common in many markets,” said Joel Hanley of S&P Global Commodity Insights.
There are no plans to disclose
Trading companies Trafigura, Gambar and Vitol are among the companies that used bookouts to redirect dated WTI cargoes traded into Brent, trade officials said.
A Trafigura spokesperson said: “As set out in the Platts methodology and common to industry participants, buyers seeking additional discharge options should market forces dictate redirection of their cargo. We are working hard to agree to the request.”
Gunvor and Vitol declined to comment.
Platts evaluated Brent crude oil prices based on the cheapest crude of the five North Sea oil stocks (Brent, Forties, Oersberg, Ekofisk and Troll) and WTI Midland on that day.
Thomson Reuters competes with Platts in providing oil market news and price reviews.
Imsilovic said Platts should be notified if a spot Brent deal is booked, as Platts may need to adjust the valuation if the original deal set the price. said.
Hanley said Platts has no plans to make CIF-to-FOB conversions transparent by publicly disclosing them or to retroactively change ratings if a shipment changes destination.
He said post-trade mutual agreements are normal practice and the fair value of crude oil delivered to Europe will be reflected in intraday CIF transactions.
U.S. regulators, the Commodity Futures Trading Commission (CFTC), declined to comment, as did the European Securities and Markets Authority (ESMA), and referred Reuters to the Dutch Authority for Financial Markets (AFM).
AFM declined to comment, saying Platts’ crude oil benchmarks do not fall under EU benchmark regulations and are not supervised by AFM.
Shipping to China
In one of the WTI deals booked out, Trafigura sold three cargoes for delivery to Rotterdam on October 2, 2023, and then negotiated a diversion to China, trade sources said.
On the day, the historical Brent differential between Forties, Brent and WTI crude rose on strong demand, with Forties hitting its highest price in over a year, according to LSG data. Platts said WTI and Brent are the cheapest grades and helped establish Brent’s price to date.
Brent crude oil futures (Brent dated) as valued by Platts fell 1.8% to $94.555 on October 2nd.
Other trading companies, including Vitol and Gambar, then bought 700,000 barrels of WTI cargo on a delivery basis to Europe, which was later converted to FOB, sources said.
Reuters was unable to quantify the exact number involved. Platts said six cases have been identified in which cargo will switch from CIF to FOB in 2024 and be consolidated onto larger vessels.
Jorge Montepeque, who dated Brent and later left Platts and became a critic of WTI additions, also said changes in cargo destinations should be disclosed.
“Traders’ bids for WTI cargo may have helped distort the perception of demand in Europe, where there was no demand for such cargo,” he said.
Platts’ Hanley disagreed, saying it was impossible to create a perception that demand was higher than pricing. This is because if you bid higher, the seller will accept your bid.
(Reporting by Florence Tan in Singapore and Alex Lawler in London; Additional reporting by Robert Harvey, Charlotte van Campenhout, Chris Prentice and Dmitry Zhidanikov; Editing by Simon Webb and Barbara Lewis)
