Following a broad consultation, S&P Global Platts proposes to reflect competitive offers of North Sea crudes on a freight-adjusted CIF Rotterdam basis in its FOB Dated Brent crude oil benchmark for cargoes loading in November 2019 onwards. With FOB supply in the North Sea gradually falling, this proposal will allow the inclusion of more relevant market data in the benchmark on a daily basis, and ensure that every barrel of the grades currently reflected in Dated Brent is able to play the fullest possible role in establishing the value of North Sea crude.
Platts now seeks feedback by February 14, 2019 on how this will be implemented, specifically the proposed timing for the change, the freight adjustment factor to be applied for relevant CIF offers, and details on vessel acceptance and previously loaded oil.
Offers on a CIF Rotterdam basis for any of the five grades currently reflected in the Dated Brent assessment would 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/Ninian Blend, Forties, Oseberg, Ekofisk or Troll, after adjusting for freight 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: Platts would reflect the inclusion of CIF offers against FOB bids for cargoes loading in November 2019, which 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 addition of further oil into the benchmark assessment should take place before the end of 2019 and can be accommodated alongside these and other developments.
FREIGHT ADJUSTMENT FACTOR: Platts proposes that the freight adjustment would comprise 80% of the respective cargo's 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%. Under this proposal, Platts would each day publish a 10-day rolling freight average 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 appears in Platts services under code PFAKD10. Platts will apply a freight adjustment factor of 80% to this 10-day average to CIF Rotterdam offers of the five grades in Dated Brent to gauge their value. The inclusion of the freight adjustment factor would be used in gauging value versus an FOB bid in the assessment process for each of the five grades in the Dated Brent basket. Platts has published assessments of all five grades on a CIF Rotterdam basis since 2017 and will continue to do so. Under this proposed change, Platts would 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 assessment if deemed competitive.
VESSEL ACCEPTANCE: Offers on Dated Brent grades on a CIF Rotterdam basis in the Market on Close assessment process should conform to the established methodology in the Platts Crude Oil Methodology And Specifications Guide, which can be found here: http://plts.co/F51w30niI6w. The seller of a CIF cargo would have the responsibility to meet the reasonable vetting requirements of a typical market participant in Northwest Europe, as well as providing standard charter party options. On buying a CIF cargo, should a buyer request the seller convert it to a cargo loading on an FOB basis at its respective load port, then the seller should accommodate this request if able. Requests for ship-to-ship options should also not be unreasonably withheld. The current Platts methodology for ship-to-ship offers remains unchanged under this proposal.
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, 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. For the purposes of including a CIF offer against an FOB bid, the Quality Premium commensurate with the FOB bid's dates would be applied.
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/Ninian Blend, 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.
INCLUSION OF FURTHER GRADES: As part of the September 24, 2018 proposal, Platts has consulted on the inclusion in the process of other grades beyond the current five in Dated Brent. Platts has noted regular trade flow into the Northwest European region, while trade practices are still evolving and becoming more transparent. Platts will continue to observe market developments in other grades within and outside the North Sea, and consult with stakeholders.
Platts opened the consultation on September 24, 2018 on the inclusion of CIF delivered grades in the assessment process for Dated Brent. The original note can be found here: http://plts.co/A3OA30niIcq. The formal deadline for feedback was December 10, after the December 6 North Sea Technical Workshop hosted in London.
Please send all further comments by February 14, 2019 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 upon request.