Major energy traders dealing in oil cargoes that underpin the Brent benchmark have employed a little-known clause to redirect US shipments away from Europe, sparking questions about the effectiveness of recent reforms to the crude price marker. Brent, the most influential benchmark in commodity markets, is used to price over 60% of globally traded crude and is the foundation for oil futures. Its value directly impacts fuel prices for consumers and businesses.
The 2023 inclusion of US crude in the benchmark was intended to curb trading practices that could skew Brent prices, according to analysts. However, the recent rerouting of cargoes has reignited concerns about the benchmark's accuracy in reflecting supply and demand dynamics. Platts, a division of S&P Global Commodity Insights, allowed US WTI Midland crude delivered to Europe to be part of its dated Brent price assessment last year, aiming to enhance liquidity as North Sea Brent and other mature oilfields face declining supplies.
In recent months, several WTI cargoes traded for European delivery via the Platts system, known as the window, never reached their intended destination, according to at least five trading sources who declined to be named due to lack of authorization to speak publicly. These reroutings have not been previously reported. Trading firms utilized a clause in Platts' methodology, called bookout, to alter the destinations of US oil from Europe to Asia or to keep it within the United States. Although permitted under Platts' rules, the practice can influence prices, including that of dated Brent, by creating a perception of stronger demand in Europe than actually exists, according to traders and industry analysts.
Platts has not received any complaints about this practice and is aware that a small number of cargoes have changed their sales basis from delivered cost, insurance, and freight (CIF) to free on board (FOB), which can be shipped anywhere. Joel Hanley of S&P Global Commodity Insights noted that such contract amendments are typical in many markets. Trading firms like Trafigura, Gunvor, and Vitol have used bookouts to modify the destinations of WTI cargoes traded into dated Brent, according to trade sources.
Platts assesses the price of dated Brent based on the cheapest of five North Sea crudes and WTI Midland on the day. There are no plans to make CIF to FOB conversions transparent or to retroactively adjust assessments if cargoes change destination, according to Hanley. The Commodity Futures Trading Commission (CFTC) and the European Securities and Markets Authority (ESMA) declined to comment on the matter.
In one instance, Trafigura sold three WTI cargoes for delivery to Rotterdam in October 2023 and later negotiated a destination change to China. On that day, the differentials of Forties, Brent, and WTI crude to dated Brent rose due to strong demand, with Forties reaching its highest level in over a year. Platts stated that WTI and Brent were the cheapest grades and contributed to establishing the dated Brent price. Other trading companies, including Vitol and Gunvor, have also bought WTI cargoes on a delivered basis to Europe that were later converted to FOB.
Jorge Montepeque, a former Platts developer who later became a critic of the WTI addition, argued that changes in cargo destinations should be disclosed. Joel Hanley of Platts disagreed, stating that it is not possible to create a perception of higher demand through pricing terms, as higher bids would naturally be accepted by sellers.
