The InterContinental Exchange (ICE) on Monday launches its first set of derivatives linked to the West African crude oil market, aimed at an industry that has called for a strengthening of the dated Brent benchmark. Traders will be able to use the ICE platform from Sept. 17 to trade a derivatives contract linked to Nigeria’s four largest crude oil grades – Bonny Light, Forcados, Qua Iboe and Bonga.
The cash-settled future will be based on a daily assessment by pricing agency S&P Global Platts for a “WAF index” backed by the four grades, each of which will carry a weighting of 25 percent, according to a note on the ICE website. The contract will be based on the differential of the four crudes to the dated Brent benchmark price and will represent 1,000 barrels of oil.
Dated Brent is currently underpinned by five North Sea crudes – Brent itself, Forties, Oseberg, Ekofisk and Troll. That quintet together accounts for less than 1 percent of the roughly 99 million barrels per day of global oil production. Leading traders such as Vitol CEO Ian Taylor and Royal Dutch Shell’s former head of crude trading Mike Mueller have been among those to express concern about the long-term decline in North Sea production and its impact on the liquidity of the market that sets the price of dated Brent.
S&P Global Platts, in response to concern from the industry over liquidity, added the Troll grade to the basket in January 2018. Taylor, who heads of the world’s largest oil trader, has said the Brent benchmark should be broadened to include grades from West Africa, Kazakhstan and Algeria, with the possible inclusion of Russia and even the United States. “As an industry we have a major problem that we have to solve,” he told an IP Week industry conference in 2014.
In 2017 Shell’s Mueller, who has since moved to Vitol to lead the company’s crude trading operations, urged S&P Global Platts to consider including other regional grades, such as Russian Urals, given that dated Brent is the backbone of about two thirds of the world’s daily oil trades.
