Contracts for Difference and the Evolution of the Brent Complex
The sharp increase in US shale production since 2011 has resulted in structural shifts in regional and global oil trade flows. In turn, this is having a major impact on oil benchmarks inside and outside the US. Brent, the major benchmark for international oil trade, is likely to be impacted the most. While the volume of US crude delivered to Europe has been rising since the US lifted the ban on crude exports in 2016, production of North Sea oil grades deliverable into the Brent basket has been falling for some time. The Brent complex must adapt to these transformations or risk its position being undermined, but changing an established benchmark with manifold layers is not a straightforward process and would require changes to the various layers in the Brent complex and their interrelationships. This comment examines a key layer of the Brent system: Contracts for Difference or CFDs.