SUBSCRIBER NOTE: Platts to reflect CIF Rotterdam offers in Dated Brent from November 2019 loadings

Following extensive market consultation, S&P Global Platts confirms that with effect from October 1, 2019, it will reflect competitive offers for Brent, Forties, Oseberg, Ekofisk and Troll crude oil cargoes on a CIF Rotterdam basis in its Dated Brent crude oil benchmark.

Allowing offers for these crudes on a CIF basis in Northwest Europe will enable the inclusion of a greater amount of market data in the North Sea's light sweet crude oil benchmark, and ensure that the grades currently reflected in Dated Brent continue to play the fullest possible role in establishing the value of North Sea crude.

Offers on a CIF Rotterdam basis for any of the five grades currently reflected in the Dated Brent assessment will be considered when evaluating the most competitively available light sweet crude oil grade in the North Sea. Should a firm CIF Rotterdam offer for Brent, Forties, Oseberg, Ekofisk or Troll, after adjusting for freight, port fees, and sailing time, be more competitive than a comparable bid for those grades on an FOB basis the CIF Rotterdam offer would take precedence in the final assessment of Dated Brent on the loading dates in question.

TIMING OF APPLICATION: In line with its January 14 proposal, Platts will reflect competitive CIF offers for cargoes loading from November 2019 onwards, which will start to appear in Dated Brent assessments from October 1. Platts has considered various market factors in the timing of this change, such as open interest in derivatives markets, and the introduction of the International Maritime Organization's global marine sulfur cap from 2020. Having considered wide-ranging feedback from the market, Platts believes that the inclusion of competitive CIF offers should take place before the end of 2019 and can be accommodated alongside these and other developments.

FREIGHT ADJUSTMENT FACTOR: Following feedback on the freight adjustment factor to be applied to CIF Rotterdam cargoes in Dated Brent, and in order to support orderly transition, Platts will phase in the level of freight adjustment over the course of three months until it reaches 80%. From October 1, a factor of 40% will be applied to November-loading CIF equivalent cargoes in the Dated Brent assessment, rising to 60% for December-loading cargoes, and 80% for January-loading cargoes onwards. These percentages would be applied to the cargo's freight rate from its respective terminal to Rotterdam and associated port fees. CIF offers for inclusion in this process should be a full 600,000-barrel cargo on an Aframax-sized ship with a tolerance of 1% in the seller's option.

CALCULATION OF FREIGHT ADJUSTMENT FACTOR: Platts will publish a 10-day rolling freight average the day before each day's Market on Close assessment process, to ensure the freight factor is fully known before the assessment process begins. This will be based on its 10 previous assessments of the Dirty Cross-UK/Continent 80,000 mt freight assessment before the date of publication. The Dirty Cross-UK/Continent 80,000 mt freight assessment is published in Platts services under code PFAKD10. Platts will apply a freight adjustment factor of the relevant percentage to this 10-day average to adjust CIF Rotterdam offers of each of the five grades in Dated Brent to determine their value. The derived FOB values would be used in determining value versus an FOB bid in the assessment process for each of the five grades in the Dated Brent basket.

CIF DELIVERY TIMING: In line with the equivalent FOB cargoes, crude for delivery between 12 days and month ahead plus two days will be reflected in the assessment.

CIF DATED BRENT: Platts has published assessments of all five grades on a CIF Rotterdam basis since 2017 and will continue to do so. Platts will continue to publish bids for the component grades of Dated Brent on a CIF Rotterdam basis, as per established methodology, which would be reflected in the final value of the respective grade's CIF assessment if deemed competitive. Platts will continue to publish an FOB and a CIF assessment for each of the five grades in Dated Brent. Offers on Dated Brent grades on a CIF Rotterdam basis in the Market on Close assessment process should, except where superseded by this subscriber note, conform to the established methodology in the Platts Crude Oil Methodology And Specifications Guide, which can be found here: https://www.spglobal.com/platts/plattscontent/_assets/_files/en/our-methodology/methodology-specifications/crude-oil-methodology.pdf.

VESSEL ACCEPTANCE: The seller should nominate the performing vessel seven calendar days ahead of the agreed three-day laycan. Should a seller be unable to perform on the original named vessel then a substitute vessel meeting or exceeding all parameters and options of the original ship should be put forward. The CIF assessment reflects basis Rotterdam delivery with typical Charter Party (CP) options. These will include relevant and typical demand outlets in northern Europe. All CP options should be passed from a seller to the buyer in the form that they exist in the original CP contract. Requests from a buyer in the MOC process for additional CP options should be passed by the seller to the vessel owner without delay upon request. If the request is made before the vessel to be nominated is fixed, the seller is not obligated to fix a vessel with any non-standard options not included in the original bid or offer. However, any requests should be passed on by the seller to the ship owner at the earliest possible opportunity.

The seller of a CIF cargo has the responsibility to meet the reasonable vetting requirements of a typical market participant in northern Europe, as well as providing standard charter party options. Requests for ship-to-ship options should not be unreasonably withheld, with the buyer covering costs if the cargo is discharged on this basis. The current Platts methodology for ship-to-ship offers remains unchanged.

PREVIOUSLY-LOADED OIL: As per the current CIF Rotterdam methodology for North Sea grades, for transactions reported through the MOC process, Platts would reflect the delivery of pre-loaded oil that has not gone back into land-based storage, provided it meets all other Platts guidelines and the seller covers any reasonable additional costs incurred by the buyer. However, oil sourced from land-based storage other than the original loading terminal will not be included. If a laycan wider than three days is offered then the buyer should declare a three-day laycan at the time of lifting.

CASH BFOE: This proposal would not affect Platts' methodology for assessing Cash Brent (BFOE) crude markets. Platts considers in its Cash BFOE assessment bids where the buyer is willing to accept nomination of Brent, Forties, Oseberg, Ekofisk or Troll crude on an FOB basis for the relevant contract month by the seller upon physical performance of the trade, with any applicable Quality Premium to be paid by buyer to seller. Similarly, the Forties sulfur de-escalator remains unaffected by this change.

QUALITY PREMIUMS: When assessing Dated Brent CIF Rotterdam, Platts takes into account QP-adjusted bids and offers of Oseberg, Ekofisk and Troll. Following the inclusion of CIF Rotterdam cargoes in FOB Dated Brent, the QP used in the CIF Rotterdam assessment will reflect the nominal equivalent FOB dates of any CIF cargo. For example, an Ekofisk cargo offered CIF Rotterdam for August 2-4, equivalent to deemed FOB dates of August 1-3, will be normalized in the FOB Dated Brent assessment using an August QP. This will remain the case even if the cargo actually loaded on, for example, July 26-28. This does not alter the nomination procedure for Cash BFOE, under which the Ekofisk July QP would be payable by the buyer to the seller in return for the nomination of this July 26-28 Ekofisk cargo rather than an equivalent cargo of Brent or Forties.

INCLUSION OF FURTHER GRADES: Platts has consulted widely on the inclusion in the FOB Dated Brent assessment process of other grades beyond the current five in Dated Brent. Platts has noted support for other grades to be included, and considers the reflecting of competitive CIF Rotterdam offers of Brent, Forties, Oseberg, Ekofisk and Troll crude in Dated Brent a critical enabling step for this in the future. Platts does not have any immediate plans to bring further grades into the North Sea crude oil basket.

This methodology update follows wide industry consultation and the proposal made on January 14, 2019, which can be found here: https://www.spglobal.com/platts/en/our-methodology/subscriber-notes/011419-platts-proposes-to-reflect-cif-rotterdam-offers-in-dated-brent-from-november-2019-loadings

Feedback closed on February 14, 2019. Platts opened its original consultation to this change on September 24, 2018. The subscriber note can be found here: https://www.spglobal.com/platts/en/our-methodology/subscriber-notes/092418-platts-invites-comment-on-reflecting-cif-crude-in-dated-brent

The formal deadline for feedback was December 10, after the December 6 North Sea Technical Workshop hosted in London.

Please send all questions and comments to europe_crude@spglobal.com and pricegroup@spglobal.com. For written comments, please provide a clear indication if they 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 upon request.