As oil benchmarks go, West Texas Intermediate has had a rough time of it lately. Earlier this year some traders said storage at its delivery point in Cushing, Oklahoma, was being pushed to its limits by the market contango, and the IEA feared it was distorting the perceived price of oil. Meanwhile the deadline for 10-yearly safety inspections has reportedly seen a ‘massive destocking of fuel in tanks’ since May, again squeezing storage.
But Brent crude might have its own issues. Unlike WTI, Brent is not physically settled, but it forms the basis of 65 per cent of the world’s daily physical oil trades. According to Platts’ The Barrel, the Brent/Ninian grade blend, one of four used in the Dated Brent assessment, is dwindling away:
The April loading program reveals daily output of just 120,733 b/d, the fourteenth consecutive month with output below 200,000 b/d and the lowest since the previous low, set in January 2009, when output totaled 136,097 b/d.
“The party is over for Brent[/Ninian Blend],” says a once-regular trader of the grade. “I don’t even look at BNB cargoes anymore as it rarely sets the [Dated Brent] assessment.”
The fall in production is stark. It is not so long ago that Brent production was over 1 million b/d.
Platts quotes sources as saying it is not because of any particularly big outages – just a declining supply from the North Sea fields. Three other grades (Forties, Oseberg and Ekofiesk) from the North Sea are also used for the Dated Brent assessment, but Brent/Ninian was the original grade – the other three were added between 2002 and 2007.
But even this will apparently change. Platts, it says, has been considering what will happen when North Sea grades are no longer in adequate supply (emphasis ours):
Some years down the line the benchmark will need tweaking again to incorporate more supply. Perhaps grades from outside the region that look like North Sea grades in terms of quality could be considered on a delivered basis - that’s one of the ideas anyway.
But what is certain is, Brent or no Brent, the Dated North Sea benchmark is going to have to change as supply dwindles even further.