Big energy merchants trading oil cargoes that form the basis of the Brent benchmark have used an obscure clause to reroute U.S. shipments from Europe, in a practice that raises doubts over whether reforms to the crude price marker have succeeded.
Brent, the most significant benchmark across commodity markets, is used to price more than 60 per cent of globally traded crude and underpins oil futures. Its value affects fuel prices paid by consumers and businesses.
The 2023 addition of U.S. crude to the benchmark had the potential to limit the scope for trading plays that can distort Brent prices, analysts said at the time. But the reroutings have renewed concern in the market about how well the benchmark reflects supply and demand.
Platts, a unit of S&P Global Commodity Insights, last year allowed U.S. WTI Midland crude delivered to Europe to be included in its Brent price assessment, called dated Brent. This was to boost liquidity as supplies from the mature North Sea Brent and other oil fields have dwindled.
But in recent months, some WTI cargoes that traded for delivery to Europe via the Platts system, known as the window, never arrived, at least five trading sources said, declining to be named because they were not authorized to speak publicly. The later rerouting has not been previously reported.
Trading companies that deal in the U.S. oil used a clause in the Platts methodology for all commodities, called bookout, to change destinations from Europe to Asia or to keep oil in the United States.
Although allowed under Platts’ rules, the sale and later rerouting of the cargoes can impact prices including that of dated Brent, traders and industry analysts said, because it creates a perception demand in Europe is stronger than it is.
Reuters has not, however, been able to establish any conclusive link between the cargo trading activity and prices over the period.
“The issue is traders watch the delivered trades and count barrels arriving to Europe. Those barrels set dated Brent,” said Adi Imsirovic, a trader, who has published books and papers on Brent and runs consultancy Surrey Clean Energy.
“If you then book out those trades, the barrels – which you think there were plenty of, and which have already set the dated price – suddenly disappear.”
Platts said it had not received any complaints about the practice and it was aware “a small minority of cargoes” changed their sales basis from a delivered cost, insurance and freight (CIF) basis to free on board (FOB), which can go anywhere.
“Such contract amendments are typical in many markets,” Joel Hanley of S&P Global Commodity Insights said.
Trading firms Trafigura, Gunvor and Vitol are among those that have used bookouts to change the destinations of WTI cargoes traded into dated Brent, the trade sources said.
A Trafigura spokesperson said: “As set out in the Platts methodology and is common across industry participants, we seek to agree requests from our buyers for additional discharge options where market forces dictate redirection of cargoes.”
Platts assesses dated Brent’s price based on the cheapest of five North Sea crudes – Brent, Forties, Oseberg, Ekofisk and Troll – and WTI Midland on the day.
Thomson Reuters competes with Platts in the provision of news and price assessments about the oil market.
Imsirovic said Platts should be informed if physical Brent trades are booked out because if the original deal set the price, Platts may need to adjust the assessment.
Platts has no plan to make CIF to FOB conversions transparent by publishing them or to retroactively change its assessments if cargoes change destination, Hanley said.
He said mutual agreements post-trade are normal practice and the fair value of the oil delivered into Europe was reflected on the day by the CIF trade.
U.S. regulator the Commodity Futures Trading Commission (CFTC) declined to comment as did the European Securities and Markets Authority (ESMA), which referred Reuters to the Dutch Authority for the Financial Markets (AFM).
AFM declined to comment, saying this was because Platts’ crude oil benchmark does not fall under the EU Benchmarks Regulation and AFM does not supervise it.
In one WTI deal that was booked out, Trafigura on Oct. 2 2023 sold three cargoes for delivery to Rotterdam and later negotiated a destination change to China, trade sources said.
On that day, Forties, Brent and WTI crude’s differentials to dated Brent rose on strong demand, with Forties hitting its highest in over a year according to LSG data. Platts said WTI and Brent were the cheapest grades and helped establish the dated Brent price.
Brent crude oil futures dropped by almost 5 per cent and dated Brent as assessed by Platts dropped by 1.8 per cent to $94.555 on Oct. 2.
Other trading companies including Vitol and Gunvor have since bought 700,000-barrel cargoes of WTI on a delivered basis to Europe that later converted to FOB, the sources said.
Reuters could not quantify the exact number involved. Platts said it had seen six instances of cargoes switching from CIF to FOB in 2024 to be combined in a larger ship.
Jorge Montepeque, who developed dated Brent and later left Platts and became a critic of the WTI addition, also said changes of cargo destinations must be disclosed.
“One could say that the bidding by traders for WTI cargoes helped distort the perception of demand in Europe where there was no demand for such cargoes,” he said.
Hanley of Platts disagreed, saying it was not possible to create a perception that demand is higher than it is in pricing terms, because if you bid higher a seller will take up your bid.
