The New Forward Brent Benchmark

On January 31st, 2023, S&P Global Commodity Insights (Platts) confirmed the inclusion of West Texas Intermediate (WTI) Midland in the forward Brent (BFOET) contract from June 2023 and provided further guidance. This followed the introduction of WTI Midland into Dated Brent in June 2022. While the change in Dated Brent is relatively straightforward, changes in the forward (or cash) contract are more complex.

The latest version validates the industry’s movement towards the STASCO 2022 Cash BFOETM general terms and conditions (GT&Cs), with the seller of a forward Brent being able to deliver a cargo of WTI Midland on a ‘cost, insurance, and freight’ (CIF) Rotterdam basis into the contract. However, the forward Brent will remain a ‘free on board’ (FOB) contract by using a freight adjustment mechanism, assessing the delivered WTI Midland ‘as if it was loaded in the North Sea’.

In spite of a number of forward Brent trades already done on the basis of the WTI Midland inclusion, there are some details that may need to be ironed out before the first ‘new forward Brent’ nominations are made in May 2023. Even earlier, the Intercontinental Exchange (ICE) May Brent futures contract which expires in March, on the basis of the ICE Brent Index, takes into account June forward and EFP trades for its methodology.

If history of Brent is anything to go by, it may take several years and an occasional bumpy ride to see the eventual, smooth incorporation of the WTI Midland into the Brent contract. In the long run, a successful inclusion of the US oil into the contract will likely lead to development and growth of liquid and transparent instruments for managing the risk of trading WTI Midland in the USGC.

By: Kurt Chapman