S&P Global Platts proposes including US WTI Midland crude in Dated Brent, keeps benchmark on FOB basis

S&P Global Platts on Feb. 14 proposed including US WTI Midland crude oil in its Dated Brent benchmark, the latest in a series of revisions intended to ensure the benchmark -- used in oil trading worldwide -- continues to reflect the market despite declining production of traditional North Sea crude.

In a subscriber note, Platts said the proposal to include a non-North Sea crude in the light sweet oil benchmark for the first time since its launch in 1987 envisages the change taking effect for cargoes loading from June 2023.

Dated Brent is seen as a bellwether for global oil markets, referred to by national oil companies in official selling prices and used in pricing other energy commodities such as LNG. The low-sulfur characteristics of North Sea crude often -- though not always -- mean oil from elsewhere trades at a discount to Dated Brent, particularly where refiners face pressure to produce low-sulfur fuels.

The inclusion of WTI Midland — a crude oil typically produced from onshore US shale plays — would extend across the complex of Brent-related trades, including Cash BFOE and related instruments, Platts said.

"We are proposing that WTI Midland cargoes become a formal part of our Market on Close process for Dated Brent, Cash BFOE and related assessments," Platts' global director for crude and fuel oil price reporting, Joel Hanley, said. "The objective of the market consultations and proposed changes is to reflect a solution for strengthening and ensuring a robust Brent complex for the decades ahead."

Platts published detailed proposals aimed at facilitating a smooth inclusion of the new grade covering issues such as crude quality, how greater freight costs are factored in, and the use of loading programs akin to those for the North Sea.

A notable new element is a proposed increase in the size of crude cargoes eligible for inclusion in the benchmark from 600,000 barrels to 700,000 barrels, which Platts says reflects a wider trend toward larger vessels.

The five existing benchmark grades have generally declined in volume and thus are in need of supplementing with oil commonly traded in Northwest Europe, Platts said.

Meanwhile US WTI crude has become popular with buyers in Northwest Europe since the US relaxed export restrictions in 2015. "WTI Midland crude has established itself as a mainstay in the European refining sector and increasingly reflected seaborne market fundamentals," Hanley said.

In March 2021 loadings of the crudes currently included — Brent, Forties, Oseberg, Ekofisk and Troll — are expected to total around 770,000 b/d, or less than 1% of the global oil market, according to loading program data compiled by Platts.

"There's been unanimous agreement that there should be more oil included in the benchmark," Hanley said, voicing confidence the proposals would meet broad approval from the market.

Among the issues to have come under consideration in a series of proposals for upgrading the benchmark is the differing qualities of any new entrant, with WTI Midland seen as closer to existing grades than the more heavy and sulfurous Johan Sverdrup, a Norwegian crude previously discussed as a possible candidate.

Platts already assesses WTI Midland with an API gravity between 40-44 degrees and a maximum sulfur content of 0.2%.

Market feedback

Responding to the proposal, the US-based Intercontinental Exchange (ICE), a venue for Dated Brent derivatives trade, said the latest proposals were reflective of market feedback.

"Today's announcement from [Platts] reflects the feedback received through the consultations which Platts and ICE simultaneously conducted on the evolution of Brent," ICE said in a statement.

"The ability of the Brent complex to evolve to reflect the changing dynamics of the market has been a key factor in its success. Our goal throughout has been to facilitate a discussion with market participants covering all of the key issues which need to be addressed to further strengthen the Brent complex for decades to come."