Shell's shock move jumpstarts oil benchmark reform debate

Royal Dutch Shell upended the oil world on Friday, unilaterally rewriting the rules of the market that sets the basis of billions of dollars of oil world-wide, risking a liquidity-sapping confrontation with other actors. In a notice published on its website, Shell said it would alter its SUKO 90 terms in the so-called Dated Brent market starting on Monday for cargoes loading in May and thereafter in a move the oil major said would bolster liquidity in the key North Sea market.
The SUKO 90 terms are the standard terms for the Dated Brent market, a complex interlocking market for over-the-counter forward oil sales contracts and physical oil cargoes in the North Sea that underlies Brent crude futures. Dated Brent has come under scrutiny from oil market analysts as overly reliant on increasingly small streams of North Sea crude oil production, which critics say leaves the Dated Brent price open to distortion and manipulation.
Other major participants in the Dated Brent market did not immediately publicly endorse or reject Shell's proposed changes. But price reporting agency Platts, which sets the generally accepted Dated Brent price that underlies oil sales contracts world-wide, said in a statement it would ignore Shell's new terms until further notice.
Platts' rejection of Shell's proposed changes risked fragmenting liquidity in the Dated Brent market, oil traders said, raising the specter of a repeat of a freeze up of the North Sea oil trade last seen in 2002 when major participants failed to agree on changes to the rules of the market. "It is a serious headache for Platts because they have been trying to find a consensus solution to the (North Sea) liquidity problem," said one veteran oil trader. Officials at Platts, a unit of McGraw-Hill Corp were not immediately available to comment.
The split between Shell and Platts comes as a steady decline in North Sea oil output and unplanned oilfield outages have raised questions about Brent's credibility as a global benchmark. These small, local supply losses can boost world prices. Shell said it will apply a new Quality Premium to BFOE forward contracts - referring to deals in Brent, Forties Oseberg and Ekofisk crudes - the four crudes that help to set dated Brent, but not to dated Brent itself.