By Ben Winkley
LONDON--Two of the biggest trading companies in North Sea crude
changed the way they do business in the region, effective Monday,
in an attempt to support the position of benchmark Brent as the
price-setter for billions of dollars in trade each day.
The U.K.'s Royal Dutch Shell PLC (RDSB), a big operator and
trader in the North Sea, has updated the terms and conditions under
which it has been trading with counterparties in the North Sea
since 1990, adding a quality premium adjustment to forward
contracts for three of the four key regional grades.
The quality premium will be added to cargoes of Brent, Ekofisk
and Oseberg, and Shell hopes this will provide an incentive to
sellers to provide more cargoes of those grades to buyers.
Previously incentives to provide these three grades were low
because Forties, the most widely traded of the four grades, known
as BFOE, was usually cheaper.
Shell hopes the move will allow for "higher liquidity and better
price discovery" in a physical market that feeds through to the
setting of Dated Brent, which is used to price the majority of the
world's crude oil.
BP PLC (BP), another big trader in the North Sea, agreed with
Shell's move, saying in a statement that "these changes will
improve the effectiveness of the Brent contract as an international
price benchmark."
Underlying Shell's move is an ongoing effort to address the
issue of declining production in the North Sea basin. This has more
than halved since December 2002, according to the International
Energy Agency, and this has raised concerns that such comparatively
small volumes should have such sway on global markets.
The four grades are normally loaded under the terms and
conditions of the field operators; Shell for Brent, BP for Forties,
Norway's Statoil ASA (STO) for Oseberg and ConocoPhillips (COP) for
Ekofisk. Cargoes are normally 600,000 barrels.
ConocoPhillips declined to comment. Statoil wasn't immediately
available to comment.
Price reporting company Platts, which sets the Dated Brent
price, said its price assessment processes are unchanged, and would
remain so until a formal industry consultation takes place. Platts,
a unit of McGraw-Hill Cos. (MHP), said it has for 18 months been in
dialogue with Brent market participants and interested parties
regarding further enhancements to its BFOE price assessment
process, which has included amending the date range for Dated Brent
to 25 days from 21.
In 2002 Platts added Forties, Ekofisk and Oseberg to the crude
grades constituting the assessment, in a bid to address falling
volumes.
Write to Ben Winkley at ben.winkley@dowjones.com
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