The Brent Benchmark – Where Do We Stand?

The introduction of the WTI Midland crude oil into the ‘Brent’ benchmark has caused a fair amount of controversy, debate, and argument, but the industry seems to be gradually reaching a consensus regarding the broad format of the new benchmark:

  • Brent assessment will remain as if it was a ‘Free on Board’ (FOB) basis, despite the inclusion of the WTI Midland crude loaded on the US Gulf Coast (USGC).
  • The cargo size will change to from 600k to 700k barrels reflecting the usual size of oil loaded in the US and bound for Europe as well as the size of modern Aframax vessels.
  • The ‘Dated’ Brent bids, offers, and trades for this grade delivered into Rotterdam will be adjusted to freight in Northwest Europe (NWE) so that the prices of WTI Midland and rest of the ‘Brent basket’ crudes are comparable.
  • The US grade can also be nominated into the Brent forward contract. While the detailed mechanics of the workings of the cash market do not seem to have been fully agreed yet, it is likely to resemble Dated Brent in as much as the value of WTI Midland will have to reflect the realities of the North Sea cash market. In other words, any Midland crude delivered to a cash buyer in Rotterdam should have its price adjusted for freight, ‘as if it loaded in the North Sea’.

Several versions of bilateral contracts or general terms and conditions (GT&Cs) for the ‘new’ Brent benchmark have emerged. The purpose of this Energy Comment is to discuss these proposed terms and other outstanding issues that need to be settled before the contract starts trading next year.

By: Kurt Chapman