Trading houses Trafigura and Gunvor bought nine cargoes of crude that underpin the international Brent benchmark in the last week and bid for more, helping to drive the steepest gains since a change in the way it was assessed in 2023.

The moves on the physical Brent market, a small club in which oil majors and trading firms buy and sell crude cargoes, have wider significance for producers and consumers, since Brent is the benchmark used to price much of the world's oil.

Gains or losses in the physical market also influence international oil futures trade, where Brent crude futures have risen 6.7% in June, the biggest monthly gain since September 2023, to $87/bbl.

Originally based only on Brent, additional grades have progressively been added to the benchmark as production from the North Sea fields decreased. Most recently, U.S. WTI Midland was added in 2023, taking the total of benchmark grades to six.

Five grades - North Sea Brent, Troll, Ekofisk, Forties and Oseberg - have risen since June 20, with Gunvor bidding for the first two and Trafigura the last three, according to information from trade sources. WTI has steadied after initial gains.

Trafigura has bought seven cargoes since June 21 - four WTI cargoes on that day and two more this week, plus a Forties cargo on June 27. Gunvor bought Forties and WTI cargoes on June 24.

Gunvor declined to comment on its trading strategy and Trafigura said it does not comment on commercial matters.

"These actions have had a direct impact on the market, leading to the observed price hike," oil analyst Philip Verleger said in a June 24 note, referring to his view of the two firms' demand for cargoes.

Dated Brent, as assessed by LSEG, rose by over 10% in the two weeks from June 7 to June 21. That's the steepest two-week gain since March-April 2023.

The wider Brent complex includes dated Brent and physical cargoes, swaps and the Intercontinental Exchange (ICE) Brent futures contract. Brent is used to price over three-quarters of the world's traded oil.

Buttressed benchmark

Oil market players had criticized the Brent benchmark for having a very thin underlying supply of the five North Sea crudes grades, which increased its volatility.

To strengthen it, oil-index publisher Platts, part of S&P Global Commodity Insights, added WTI Midland to its Brent price assessment from June 2023 deliveries.

Jorge Montepeque, who developed the dated Brent benchmark at Platts, said the latest trading activity coincided with thin supply of North Sea grades due to summer oilfield maintenance.

Montepeque left Platts in 2015 and works for Onyx Capital Group as its managing director for benchmarks.

Since the 2023 benchmark change, WTI typically represents a larger share than the volume of the North Sea crude.

That is still the case, although the amount of WTI Midland heading to Europe has dropped in June to about 850,000 bbl/d, the lowest since 2022, according to Kpler data.

Platts said the change to dated Brent was working and the market feedback has been positive since the addition of WTI: "That's reflected in new participants, more liquidity and even greater transparency."

Adi Imsirovic, director at consultant Surrey Clean Energy and an oil trader who has written extensively on Brent, said the volatility would have been much greater had Midland not been added to the benchmark.

The differential of Midland to dated Brent, which reached an average of plus $2.43 on a delivered basis on June 21 when Trafigura bought four cargoes, had slipped to plus $2.30 by June 27 as fresh selling interest emerged. Forties was up in the same period.

"None of these benchmarks are perfect, but Brent is looking okay," he said.

Thomson Reuters competes with Platts in providing news and data about the oil market.

Comments