Feature: Brent complex evolves to fully reflect Atlantic Basin light sweet crude market dynamics

The Brent market has undergone a long-awaited evolution this year, with the addition of WTI Midland crude meaning that the complex more accurately than ever captures the fundamentals and pricing of light sweet crude oil in the Atlantic Basin.

Since the lifting of the US crude export ban in 2015, WTI Midland has played an increasingly influential role in the pricing of crude being delivered into Europe. North Sea grades such as Forties and Ekofisk, Mediterranean grades such as CPC Blend and Azeri Light and West African grades such as Qua Iboe and Bonny Light have all had to adapt to over one million barrels of light sweet US crude being delivered each day into Europe.

In the period since US crude became accessible to the global market, refiners across Europe have benefitted from the increased choice of crude and have adjusted refining slates accordingly and optimized between WTI Midland and its Atlantic Basin competitors. Prior to May 2023 the value of grades within Dated Brent were already being impacted, albeit in a somewhat opaque way, by the steady flow of WTI Midland into Europe. Now the pricing of this established trade flow has been illuminated and made transparent by its incorporation into the Brent complex.

Pricing

WTI Midland's role in the price of Dated Brent has been much discussed since the grade's introduction for June 2023 cargoes. An examination of assessment data since May 2 clearly demonstrates that WTI Midland has been influential, but not overwhelming.

The Platts Dated Brent assessment is defined by the most competitive, or cheapest, grade every day. S&P Global Commodity Insights gives each day in the 10-month ahead assessment range a value for each grade. The final assessment is reflective of any number of the six grades, depending on what is the most competitive valued grade on each day, so a single assessment could be representative of 40% Midland, 40% Forties and 20% Brent, for example.

In June Midland was typically the most competitive grade, while in August Forties has most often helped define the benchmark.

Liquidity

The addition of WTI Midland to Dated Brent has facilitated a large increase in the amount of deliverable crude into Dated Brent, and this has been reflected in a sharp uptick in activity in the Platts Market on Close assessment process. Since May through July, a diverse group of oil majors and traders collectively traded 40 cargoes of WTI Midland comprising a total volume of 28 million barrels of crude.

At 16.8 million barrels, July 2023 was the largest month for overall Dated Brent cargo trades since January 2021, and the joint-fourth busiest month on record.

Performance tracking

As part of an ongoing commitment to upholding the highest standards of integrity and transparency in its Platts Dated Brent MOC process, S&P Global monitored performance on the 17 WTI Midland CIF Rotterdam trades published in the MOC process during the first two months of May and June. This post-deal tracking enables S&P Global to determine the actual performance of the participants in the trades and the validity of their inputs.

As part of this, S&P Global reviewed various aspects of performance, including timeliness of nominations and eventual delivery, as well as published parameters of the trades, including quality and volume.

Of the 17 trades tracked, two were booked out upon mutual agreement, while all others were physically delivered to buyers. Although all 17 published WTI Midland trades were fully performed upon, two of the cargoes initially provided did not meet the parameters of the published trades. In both cases, full performance was eventually reached, with the entities involved coming to bilateral agreement on final terms.

Physical conditions regarding logistics -- which are beyond the control of the seller or buyer -- may result in lateness, quality issues or conditions seen as a deviation from the original wording in the reported trade, for example late delivery/loading. As per methodology, if a transaction becomes difficult, the party causing the issue must seek resolution including alternative loadings, qualities, dates or book outs.

S&P Global also reviewed the quality of all cargoes, and the table within the graphic shows the minimum and maximum values of some key quality metrics. Notably, only one cargo out of all tracked exceeded the WTI Midland specification that S&P Global reflects in its assessments. However, all cargoes that were eventually delivered to buyers fully met the specification.

The table below shows the transactions that were monitored for performance in May & June: