LONDON (Dow Jones)
North Sea oil traders Friday expressed concern that oil price assessment company Platts is proceeding with revisions to its assessment of dated Brent, the benchmark used to price more than half the world's oil, in early 2012 despite industry worries it is too soon for the market to adequately prepare for the changes.
Platts' move comes after three months of consultation with the industry, during which oil major Royal Dutch Shell PLC (RDSB.LN) publicly criticized the timing of the proposed changes and called for a delay in their implementation.
Traders said they were surprised that Platts had ignored the concerns of such a large player in the market, adding that the McGraw-Hill (MHP) company's failure to address the concerns raised by Shell and other members of the industry could cause problems in the long-term.
However, Platts said its proposals, which it is introducing to boost Brent's liquidity and make it less vulnerable to manipulation by big players amid declining production from some critical North Sea oil fields, had received substantial support from within the industry.
"We are pleased with the support shown by the industry for the move itself, though we recognize that there were a range of differing views on the timing," said Dave Ernsberger, Platts global director of oil.
The controversial changes involve extending the timeframe over which Platts looks at trades to calculate the price of the benchmark on the physical market to 25 days, from 21 days currently.
However, in a public statement issued in mid-August Shell said the modification to the dated Brent assessment should be delayed to the first quarter of 2013. It added that the revision needed to be linked with an earlier publication of the crude blend's monthly loading programs and a change in the expiry date of Brent on the futures market, to avoid the markets becoming disjointed.
"We maintain the January 2012 timing announced by Platts today is likely to cause issues with the futures market and its derivatives such as swaps and options transactions which could have been avoided if a 2013 implementation date were adopted," a Shell spokesman said Friday. "Nonetheless, we believe the Brent market will continue to function and will find ways to overcome this short term difficulty," he added.
Although Platts has decided not to wait to coordinate with changes on the futures market, the company acknowledged the need to seek closer coordination between the two markets in its Friday subscribers note informing the market of its plans.
"Platts clearly sees the value of alignment to market changes, and continues to call for adaptations to be made to all related instruments, including futures, to keep step with the evolution of the marketplace as a whole," the company said.
Traders said the company's decision to implement the changes unilaterally didn't seem entirely logical, but added that only time would tell the real impact this might have on the market.
Nonetheless, there is general consensus that change is needed to increase the liquidity of the Brent basket, as declining production at major fields has led to growing concerns that the benchmark could be vulnerable to price spikes.
"We believe these changes are necessary to maintain the quality of the Brent price assessment. Recent events in the market, including disruptions to the Forties pipeline system and shortfalls in cargo deliveries, show clearly that timely action is needed to maintain the strength of the physical benchmark," said Dan Tanz, vice president of editorial at Platts in a statement.
This year, maintenance on the giant Buzzard oil field and the discovery of a World War II mine near a major pipeline have resulted in shutdowns on top of earlier delays and cancellations to crude oil cargoes.
The various issues combined to cause the supply of Forties crude, the largest component of the Brent marker, to fall to its lowest level since May 2008, pushing up prices in the physical market and feeding through into futures prices.
Platts said further changes were likely in the future, introducing the possibility of extending the assessment timeframe to 30 days in 2015 or 2016 and repeating its intention to introduce additional crude grades into the Brent basket in the coming years.
(Konstantin Rozhnov in London contributed to this article.)Copyright (c) 2011 Dow Jones & Company, Inc.
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