U.S. Oil Could Soon Help Set The Brent Crude Price

(Bloomberg) -- S&P Global Platts, the company that sets the key price of Brent crude, is contemplating the eventual incorporation of U.S. oil to help calculate one of its newest European benchmarks, a sign of just how much America's booming exports are reshaping global energy trading.

The publisher of prices used to settle physical crude trades is deliberating whether it might one day include U.S. oil when assessing Brent crude delivered to the Dutch port of Rotterdam, the company said on Wednesday. The potential change doesn't apply to its widely used Dated Brent benchmark that's based on prices where oil is loaded.

U.S. crude exports have surged since the nation lifted all restrictions on overseas shipments in late 2015, reaching an unprecedented 3 million barrels a day at the end of June. Commodities giant Trafigura Group this week offered to sell a cargo of American oil for delivery to Rotterdam on a Platts-run trading window, at least the third time this year that a trader has sought to do so.

“A number of crude grades could one day be considered for inclusion” in Platts' Rotterdam assessment, said Joel Hanley, senior director for European oil pricing at the company. “These should be grades currently being delivered into the region, which could start with current North Sea grades and be expanded into others, could include grades from West and North Africa, the Mediterranean, as well as the U.S.”

While the main benchmark has the name Brent, in practice it reflects the price of five different grades loaded in the North Sea since the original field with that name now pumps far too little to underpin a reliable benchmark.

But with the region's production facing a structural decline, Platts started the new Rotterdam-delivered assessment in March 2016. When it did so, it said the pool of crudes could be widened if suitable grades could be found. Platts said at the time that the new Rotterdam marker would help the market if ever liquidity underpinning the Dated Brent benchmark dried up.

Historically, while European and U.S. oil prices have tracked one another, they've also traded based on their own supply-and-demand dynamics. The difference between Brent and West Texas Intermediate futures, currently around $6.50 a barrel, remains one of the most-traded energy spreads in the world today.

The main Dated Brent marker was started in 1987. As production declined, Platts added Forties and Oseberg crude in 2002, followed by Ekofisk in 2007 and Troll in December last year. While the additions helped the benchmark's liquidity, they also add a layer of complexity. Platts uses “quality premiums” and “de-escalators” to adjust for the different properties found in various grades, particularly sulfur.

There's no guarantee that U.S. crude will ever actually become part of any Brent price, and such alterations often take a long time to become reality. For example, talk over the past few years of using Russia's Urals crude to help formulate North Sea oil prices has more recently quietened down.

To contact the reporter on this story: Laura Hurst in London at lhurst3@bloomberg.net

To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net, Brian Wingfield

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