The world’s top oil benchmark needs fundamental and urgent reform due to dwindling North Sea output, the Scots boss of one of the world’s largest commodity traders said yesterday.
Ian Taylor, chief executive of Geneva-headquartered Vitol, added to the long-running debate about Brent by calling for immediate action to broaden the benchmark. He wants it to include crude from other areas apart from the North Sea.
Brent prices are currently calculated using four North Sea grades, with output from the giant Buzzard field – fed through the Forties pipeline system – being a key driver.
Britain’s oil output peaked in 1999. Norway is planning to revive production after a decade-long decline, although a major field in the effort, Johan Sverdrup, will not start up until 2019.
Mr Taylor, who is both a director and the largest shareholder at Western Isles business Harris Tweed Hebrides, said the benchmark should be broadened to include grades from West Africa, Kazakhstan, Algeria, possibly Russia, and perhaps even the US.
Speaking at the International Petroleum Week 2014 conference in London, he said: “We have a major problem here that we have to solve.”
Brent is a global benchmark for two-thirds of the world’s internationally traded crude oil supplies.
It is underpinned by four physical North Sea crude streams – Brent itself, Forties, Ekofisk and Oseberg.
Output of these four grades has fallen by more than 20% in the past five years to below 1million barrels a day in January.
Although physical volumes have dwindled in recent years, futures contracts are widely traded.
Platts, the pricing agency that evaluates the benchmark, has conceded that changes might have to be made, but not immediately.
It has said, however, that oil from outside the region will be needed if North Sea supply does not expand rapidly.
Platts director Jorge Montepeque said: “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.”
Brent is currently at the centre of a manipulation probe launched by EU competition authorities last year.
Investigators raided the offices of three energy giants – BP, Shell and Statoil – amid allegations of oil price-fixing.
It was thought the suspected violations – companies reporting distorted prices to reporting agency Platts to manipulate the published prices for a number of oil and biofuel products – might have been going on for 11 years.
Launching its inquiry, the European Commission said: “Even small distortions of assessed prices may have a huge impact on the prices of crude oil, refined oil products and biofuels purchases and sales, potentially harming final consumers.”
Further allegations of price-rigging for Brent crude have emerged in the US, where BP and Shell were named in a lawsuit brought by four oil traders late last year.
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