BP sides with Shell on North Sea price reform
LONDON -- BP has lined up alongside Shell in a debate over reform to pricing in the crucial North Sea crude-oil market.
In a letter from BP to pricing agency Platts, dated March 6 and seen by Dow Jones Newswires Friday, the U.K.-based oil giant said it supported proposals made by Shell over those made by Platts for both the introduction of quality premiums and the length of the time frame used to calculate average prices.
The move is the latest step toward improving both liquidity and how prices are established in the physical market that feeds through the setting of Dated Brent, the price against which much of the world's physical oil is traded. Dated Brent in turn underpins ICE Brent, a futures contract regarded as the global oil price.
The changes proposed by the two oil giants and McGraw-Hill -owned Platts all seek to encourage more sellers into the market, in the hope that this will better reflect the global supply-demand balance and result in a price that is more akin to what people are actually prepared to pay for the product.
Platts has proposed introducing a price-escalator to reflect quality premiums for delivery of Oseberg and Ekofisk, two of the four key regional grades that make up Brent-Forties-Oseberg-Ekofisk, the basket known as BFOE.
The BP letter, which is signed by crude oil trading manager Grahame Cook and addressed to Jorge Montepeque, global director at Platts, said the oil company is unable to support neither Platts' proposals for the premiums, nor the proposed time frame to be used in their calculation. Referring to the latter point, BP said that it "would urge [Platts] to reconsider your position."
BP's position aligns with that of Shell, which March 5 said it recommends a lower premium for Oseberg than does Platts, along with a low premium on Brent that Platts doesn't support, and said a longer time frame should be used. All parties are in favor of a June implementation of any changes.
The relevance of BFOE, against which billions of dollars of global oil-trade is priced daily, is under scrutiny. Diminishing volumes in the North Sea basin means the market can easily be distorted by one or more big trades.
Market participants hope for a swift resolution of the current impasse.
"Unification would be in the market's interest as there is a danger that two competing systems could split the liquidity of the BFOE market, which wouldn't be in anybody's favor," according to analysts at JBC Energy.
Platts provides energy-market information in competition with Dow Jones Newswires and The Wall Street Journal
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