--Platts is to reveal final proposals on changes to way it calculates dated Brent in mid-September
--Changes needed to combat declining production volumes of crudes feeding into Brent
--Shell says changes should be delayed to 1Q 2013
LONDON -(Dow Jones)- Oil price assessment company Platts plans in mid-September to reveal its final proposals on changes to the way it calculates dated Brent, the benchmark used to price more than half the world's crude oil, after extensive consultations with the oil industry conclude on Sept. 9, representatives of the company said this week.
Platts wants to boost liquidity in the market so the global oil benchmark is less vulnerable to manipulation by big players or price spikes due to production and maintenance issues at key North Sea oil fields. The McGraw Hill (MHP) company has proposed extending the timeframe over which it looks at trades to calculate the price of the benchmark on the physical market--a move it says will increase the volume of trades considered by 25% to 30%.
The core of what Platts is trying to do is protect the integrity of the assessment process, Platts Global Director of Markets Reporting Jorge Montepeque said.
"The fact is, production [in the North Sea] has fallen. There were some issues this summer and there are issues every summer," he said.
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 cancelations 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.
Declining output of North Sea crudes feeding into the benchmark has been an ongoing problem over the past decade. Initially, the benchmark comprised only Brent, but as production peaked and began sharply declining, it wasn't difficult for a market participant to buy all the cargoes in a given month and push the price up. Platts added other North Sea crude grades Forties, Oseberg and Ekofisk to bulk up the Brent benchmark and increase liquidity in the market.
Now, it wants to boost liquidity in the number of trades evaluated in the trading window for the same reason.
Platts currently evaluates oil prices in a 12-day window 10 to 21 days ahead of the current date. From January 2012, Platts wants to expand the period to a 16-day window based on trades made 10 to 25 days ahead.
However, not all market participants are happy with the changes Platts plans to implement.
In mid-August, Royal Dutch Shell PLC (RDSB.LN), a major player in the North Sea oil market, issued a public statement on the website of its trading arm, Stasco, criticizing some of the proposed changes and calling for delays to their implementation.
Shell wants to delay the revisions to the first quarter of 2013 and link them with changes to the expiry date of Brent on the futures market and an earlier publication of the crude blend's monthly loading volumes.
The Anglo-Dutch oil giant said it had discussed its ideas with some of the more active players in the Brent market and had found general support for them.
North Sea crude traders from other integrated oil companies and trading houses told Dow Jones Newswires that there was general support for Shell's proposals.
"Certainly there seems to be widespread thought that implementation of a change as soon as January 6, 2012 would not be wise," a North Sea crude trader said.
Implementing the changes too quickly could be disruptive and would require large-scale coordination between a number of people in the futures market as well as the physical market, traders have said.
Platts executives said a final decision on when the changes would be implemented hasn't yet been taken, adding that the company is consulting with a very wide range of market participants and would consider all their views.
"It is not uncommon at all to get many different views...to call out one is not particularly relevant for us," said Dan Tanz, vice president of editorial for Platts. It is not about who says what, it is the power, logic and rationale behind the proposals put forward, he said.
However, market participants said Platts would find it hard to ignore such an emphatic statement from a company as prominent in the North Sea market as Shell.
"I think it unlikely they would be able to ignore such an important player and think they can override Shell," another trader in the North Sea market said.
(Konstantin Rozhnov in London contributed to this article.)
Copyright © 2011 Dow Jones Newswires
