Shell proposes adding Russian oil to Brent benchmark

LONDON / Reuters

Royal Dutch Shell on Wednesday urged oil pricing agency S&P Global Platts to protect the dated Brent crude benchmark from declining North Sea supply by including other grades, such as Russian Urals, in its price-setting process.
The suggestion marks a shift from two years ago when Shell said adding Urals would not be “worth the trouble”. The benchmark, based on light North Sea crude grades, is used to price about two-thirds of the world’s oil but a decline in North Sea output has led to concerns that physical volumes could become too thin and prone to large price swings.
Platts announced it would add
a fifth grade, Troll, to the benchm-ark slate from January 2018 but Shell says more must be added in the next two to three years and considers Russian medium sour Urals as a top candidate.
The benchmark is now made up of Brent, Forties, Oseberg, and Ekofisk, known as BFOE. “A good benchmark need not only be representative of what the region produces … If you had to pick one grade of crude, Urals is the one which northwest European refineries should be designed to run optimally,” Mike Muller, vice president of crude trading and supply at Shell, told the Platts Crude Summit in London.
Muller also suggested the price of dated Brent be derived from the average price of a basket of crudes, rather than by using the lowest priced of the four BFOE crudes on any given day. This would simplify the price-setting process, he said.
Two years ago, Muller said European refineries were already free to buy Urals — a crude stream
that dwarfs North Sea streams in volume — as a substitute to the North Sea Forties grades as they are similar in quality.