Vitol head wants an overhaul of the Brent Oil Price Benchmark
18 February 2014 Last updated at 23:00
Oil boss urges overhaul of Brent oil price benchmark
By Jamie Robertson
The head of the world’s largest oil trading firm has called for an overhaul of the Brent Crude benchmark oil price.
Ian Taylor, the chief executive of Vitol, says Brent is no longer efficient as a price and should include other global oil grades.
A leading oil analyst at Citigroup, Seth Kleinman, has also called Brent a “broken” benchmark.
Platts, the price reporting agency, says change may be necessary, but not yet.
Brent crude is taken from a basket of just four streams of crude taken from the North Sea and the price is dependent on a limited number of factors.
Generally, the price is resilient because of declining North Sea oil supply, the redirecting of Russian supplies from Europe towards Asia, and increasing demand for North Sea oil from China and South Korea wishing to diversify their supply chains.
Seth Kleinman of Citigroup said: “I would not say that it is massively misleading. It’s not that the world is awash with oil and Brent [doesn’t fall].
“But when you do get softness in the Asia markets, when you do get a big surge in Brazilian production, when you do see the US imports dropping off a cliff because shale oil production is going through the roof, Brent doesn’t seem to move at all. Nothing moves the needle.”
Mr Taylor told the International Petroleum Week conference in London he was “extremely concerned about the role of benchmarks”.
“We, as an industry, have a major problem here that we need to solve,” he said.
He said that Brent should include grades of oil from round the world including Africa, Khazakhstan, Algeria and, possibly, Russia.
Platts has said it is looking to add Norwegian production to the Brent benchmark price. Norway is planning to invest $8bn in the Johan Sverdrup field in the North Sea, but it will not come on stream until 2019.
Jorge Montepeque, Platts editorial director of its market reporting division, told a news conference this week:”We need to add similar grades from outside the region over the next two to five years if the new Norwegian production is not significant,”
The issue is increasingly sensitive as the European Commission has started to investigate the setting of physical oil prices as part of its programme of investigations into benchmarks such as Libor.
Last year, it raided the offices of Platts as well as some of the world’s biggest oil companies including Shell, BP and Statoil.
Mr Kleinman said that the resilience of the Brent price meant that speculators would buy into any price falls and be certain that it would rise quickly. He said: “It’s a lot easier to move this market up than down, and all in all it’s a contract that doesn’t reflect the ups and downs of supply and demand.”