February 19, 2018, by Alex Lawler
LONDON (Reuters) – Oil pricing agency S&P Global Platts said production from the Johan Sverdrup oilfield would be suitable for its North Sea basket, making it potentially a sixth crude underpinning the Brent benchmark that prices most of the world’s oil.
A steady decline in crude supply from the North Sea has led to concern that output could become too low and hence could be accumulated by just a few players, making the benchmark vulnerable to manipulation.
Statoil’s Johan Sverdrup is an offshore oilfield due to start pumping oil in late 2019. One of the five largest fields on the Norwegian continental shelf, it holds up to 3.1 billion barrels of recoverable oil.
“We think Johan Sverdrup is a prime candidate for addition to the North Sea basket,” Jonty Rushforth, senior director of Platts’ energy price group, said at an industry conference.
“Looking forward it is very difficult to see any other grades beyond Sverdrup that really are suitable for the benchmark on an FOB basis.”
At present, Brent is based on five British and Norwegian North Sea crudes – Brent itself, Forties, Oseberg, Ekofisk and Troll, or BFOE as they are known. They pump about 1 million barrels per day – almost 1 percent of world supply.
Brent is used to set the price of billions of dollars of daily oil trade though a forward market for BFOE crude cargoes, swaps markets, physical benchmark dated Brent and Brent crude futures.
To maintain liquidity, Platts has increased the number of grades from Brent originally and began to apply quality premiums to two better-quality crudes – Oseberg and Ekofisk – to encourage delivery of these into contracts.
Troll was the latest crude to be added, earlier this year. Although it is also a better-quality crude, Troll does not have a quality premium, but Platts said it is looking at adding one.
“We are discussing with the market the possibility of a prompt implementation,” Rushforth said.
He was speaking at a Platts conference held a day before the start of the Energy Institute’s IP Week, an annual gathering of the oil trading industry in London.
Platts also announced two additional tweaks designed to improve market transparency. The company said it will begin publishing from March 1 all cargo loading date information for the five existing benchmark grades.
Cargo loading dates often change, and the need for regular updates was illustrated in December 2017 when the Forties oil pipeline had an unplanned shutdown, delaying cargoes.
Platts also said it will, starting on March 26, assess the value of 11 crudes on a delivered basis to North Asia, reflecting its growing importance as the world’s largest oil importing region.
Thomson Reuters, parent of Reuters news, competes with Platts in providing news and information to the oil market.
Editing by Jason Neely/Mark Heinrich