Platts confirms inclusion of WTI Midland in cash BFOE from June 2023 contract month, adds further guidance

Following a period of industry consultation, Platts, part of S&P Global Commodity Insights, confirms its Cash BFOE methodology will include WTI Midland crude, effective from the June Cash BFOE contract month.

This follows the earlier decision to include WTI Midland in Dated Brent and Cash BFOE, published June 8, 2022, and available here:

https://www.spglobal.com/commodityinsights/en/our-methodology/subscriber-notes/060822-platts-to-reflect-wti-midland-in-dated-brent-cash-bfoe-from-june-2023

At that time there were several sets of draft BFOE terms circulating among market participants but, since then, Platts has observed industry coalescence around a single set of amendments to the forward contract. Considering this, Platts will make several key changes to its Cash BFOE methodology from June 2023 deliveries.

NOMINATIONS OF WTI MIDLAND:

Under the new methodology, a seller may deliver a cargo of WTI Midland on a CIF Rotterdam basis into a Cash BFOE trade. In such instances, the seller shall charter an Aframax vessel with Northwest European and Mediterranean options, with title and risk to pass from seller to buyer after the vessel leaves the US Economic Exclusion Zone (EEZ). Any WTI Midland cargo nominated into the cash mechanism should meet the following standards: a cargo of WTI Midland crude produced in the Permian Basin, which meets the Platts WTI Midland specification; it should have passed through Platts-approved pipelines; and is shipped from a US Gulf Coast terminal that has been approved by Platts for participation in the Dated Brent and cash BFOE assessments. Platts expects subsequent vessel terms to conform to industry standard.

A cargo of WTI Midland should be nominated at least one month and one day before its implied arrival time in Rotterdam. Cargoes of WTI Midland can be nominated for all days in the month, as they are on the existing BFOE grades.

As an example, a free-on-board (FOB) cargo of Forties loading at Hound Point on July 26, and arriving at Rotterdam on July 27, would typically be nominated by the seller to the buyer on June 26.

A cargo of WTI Midland with an implied arrival time in Rotterdam of July 27 would have to be nominated by the seller to the buyer on June 26, accounting for its deemed loading date in the North Sea and shipping time to Rotterdam.

A WTI Midland cargo nominated into Cash BFOE would be adjusted to account for the fact that delivery is being made into Rotterdam, as the buyer would not have to charter a vessel and transport it from a North Sea terminal. Adjustments would be in line with industry standards.

FREIGHT:

An Aframax fixed for a WTI Midland Cash BFOE nomination should carry standard Northwest European and Mediterranean discharge options. Platts understands that industry standards have emerged on how the price of the contract would be adjusted if a buyer chooses to deviate the ship to a destination other than Rotterdam. Should a buyer choose to take the cargo to the Mediterranean, as per standard charter party required in the cash BFOE methodology, the freight deviation costs should be calculated as per industry standard on the cost difference between a USGC-to-UK Continent voyage and an equivalent fixture from USGC to Mediterranean. The Platts symbols for the Worldscale assessment of these routes are TDUCG00 and TDUWS00, respectively.

QUALITY:

Platts will include WTI Midland cargoes in Cash BFOE that meet its globally applied specification, which can be found here:

https://www.spglobal.com/commodityinsights/plattscontent/_assets/_files/en/our-methodology/methodology-specifications/emea-crude-methodology.pdf

Platts will review the applicability of a quality premium or any similar adjustment mechanism for WTI Midland cargoes in the Brent complex after initial implementation, but Platts has not observed widespread support for adjustment mechanisms to be applied to WTI Midland on implementation.

SIZE AND VOLUME TOLERANCE:

Cargoes of all grades, including WTI Midland, nominated into Cash BFOE should be 700,000 barrels, with a tolerance of +/-1% in the buyer's option.

CONVERGENCE ON CASH CARGOES:

With the cargo size of Cash BFOE increasing to 700,000 barrels, if the same two counterparties trade seven partial contracts of 100,000 barrels in one direction for the same delivery month in the Platts MOC process, the partials should converge into a full physical cargo of 700,000 barrels for loading in that named month.

Please send all comments, feedback and questions to europe_crude@spglobal.com and pricegroup@spglobal.com. For written comments, please provide a clear indication if comments are not intended for publication by Platts for public viewing. Platts will consider all comments received and will make comments not marked as confidential available to the public upon request.