The Future of the Brent Oil Benchmark: A Radical Makeover
Brent is the world’s most important crude oil benchmark. Arguably, it is responsible for pricing almost seventy percent of globally traded crude oil and long-term LNG. Over time however, the falling production of Brent has forced the price reporting agencies (PRAs) to introduce new grades in the ‘basket’ of crudes eligible for delivery as ‘Brent’ and widen the loading dates that can be used in their assessments. Currently, in any given month, only a couple of cargoes of the grade Brent are loaded and there have even been calls for the removal of the grade from the benchmark altogether. Brent has become just a brand name in a price assessment process that must be one of the most complex in the global commodity space. Even now, the five grades that make up the Brent basket namely Brent, Forties, Ekofisk, Oseberg and Troll (BFOET), are not sufficient to provide the necessary liquidity for the world’s most important oil benchmark. In February 2021, S&P Global Platts announced the decision to introduce West Texas Intermediate (WTI) Midland in the Brent benchmark, and the latest version of S&P Global Platts proposal has been presented to the industry for consultation until early April 2022. The proposal will make the already complicated benchmark and price discovery process even more so. The purpose of this Energy Comment is to outline the reasons for the proposed change and discuss the possible consequences for the market and the industry if the latest proposal is adopted.