By Florence Tan, Alex Lawler and Robert Harvey
LONDON (Reuters) – Major energy traders trading oil cargoes that form the basis of the Brent benchmark have used an obscure clause to divert U.S. shipments from Europe, in a practice that raises doubts over whether reforms to crude price marking oil have been successful.
Brent, the main benchmark in commodity markets, is used to price more than 60% of the world’s traded crude oil and forms the basis for oil futures. Its value influences the fuel prices that consumers and businesses pay.
The addition of U.S. crude to the benchmark in 2023 had the potential to limit the scope for trading activity that could disrupt Brent prices, analysts said at the time. But the diversions have revived market concerns about how well the benchmark reflects supply and demand.
Platts, a part of S&P Global Commodity Insights, last year allowed U.S. WTI Midland oil supplied to Europe to be included in the Brent price assessment, called dated Brent. This was intended to increase liquidity as supplies from the mature Brent oil fields in the North Sea and other oil fields have declined.
But in recent months, some WTI cargoes traded through the Platts system, known as the window, for delivery to Europe never arrived, at least five trade sources said. They did not want to be named because they were not authorized to speak publicly. The later diversion has not previously been reported.
Trading companies that trade U.S. oil used a clause in the Platts methodology for all commodities, called a bookout, to change destinations from Europe to Asia or keep oil in the United States.
Although allowed under Platts rules, the sale and later diversion of the cargoes could impact prices, including that of dated Brent, traders and industry analysts said, as it creates the perception that demand in Europe is stronger is than he is.
However, Reuters was unable to establish a conclusive link between freight trading activity and prices during the period.
“The problem is that traders are watching the delivered trades and counting the barrels arriving in Europe. Those barrels are dated to Brent,” said Adi Imsirovic, a trader who has published books and articles on Brent and runs consultancy Surrey Clean Energy .
“When you then book those transactions, the barrels – which you think were enough and which have already set the dated price – suddenly disappear.”
Platts said it had received no complaints about the practice and was aware that “a small minority of freights” were changing their sales basis from a delivered cost, insurance and freight (CIF) basis to free on board (FOB) basis. , which can go anywhere. .
“Such contract changes are typical for many markets,” said Joel Hanley of S&P Global Commodity Insights.
NO PLAN TO DISCLOSURE
Trading firms Trafigura, Gunvor and Vitol are among those that have used bookouts to change the destinations of WTI cargoes traded in dated Brent, the trading sources said.
A Trafigura spokesperson said: “As set out in the Platts methodology and common practice among industry participants, we seek to accommodate requests from our buyers for additional offloading options where market forces dictate a new direction of loading.”
Gunvor and Vitol declined to comment.
Platts estimates the dated price of Brent based on the cheapest of five North Sea crudes – Brent, Forties, Oseberg, Ekofisk and Troll – and WTI Midland on that day.
Thomson Reuters competes with Platts in providing news and price assessments about the oil market.
Imsirovic said Platts should be notified if physical Brent trades are fully booked, as Platts may need to adjust the assessment if the original deal sets the price.
Platts has no plan to make CIF-to-FOB conversions transparent by publishing them or to retroactively change its ratings as loads change destinations, Hanley said.
He said post-trade mutual agreements were a normal practice and the fair value of oil delivered to Europe on the day was reflected by CIF trading.
The US regulator, the Commodity Futures Trading Commission (CFTC), declined to comment, as did the European Securities and Markets Authority (ESMA), which referred Reuters to the Netherlands Authority for the Financial Markets (AFM).
The AFM declined to comment, saying this was because Platts’ crude oil benchmark is not covered by the EU Benchmarks Regulation and the AFM does not monitor it.
SHIPPING TO CHINA
In one WTI deal that was fully booked, Trafigura sold three cargoes for delivery to Rotterdam on October 2, 2023 and later negotiated a destination change to China, trade sources said.
On the day, differentials between Forties, Brent and WTI crude rose against dated Brent on strong demand, with Forties reaching their highest level in more than a year, according to LSG data. Platts said WTI and Brent were the cheapest grades and helped set the dated Brent price.
Brent crude oil futures fell almost 5% and Brent futures, as estimated by Platts, fell 1.8% to $94,555 on October 2.
Other trading companies, including Vitol and Gunvor, have since purchased WTI cargoes of 700,000 barrels on a delivered basis to Europe, which were later converted to FOB, the sources said.
Reuters was unable to quantify the exact number. Platts said it had seen six cases in 2024 of cargoes transferring from CIF to FOB to be combined into a larger vessel.
Jorge Montepeque, who dated Brent and later left Platts and became a critic of the WTI addition, also said changes in cargo destinations should be made public.
“You could say that traders’ bidding for WTI cargoes helped distort the perception of demand in Europe, where there was no demand for such cargoes,” he said.
Platts’ Hanley disagreed, saying it was not possible to give the impression that demand is greater than price because if you bid higher a seller will take your offer.
(Reporting by Florence Tan in Singapore and Alex Lawler in London, additional reporting by Robert Harvey, Charlotte Van Campenhout, Chris Prentice and Dmitry Zhdannikov, Editing by Simon Webb and Barbara Lewis)
