Johan Sverdrup emerges as potential Dated Brent saviour – Argus

London (Quantum Commodity Intelligence) – Price Reporting Agency Argus has presented a case for the inclusion of Norway's Johan Sverdrup crude as a potential component of the Dated Brent basket of crudes, noting the grade, "is being touted as an unlikely saviour" for Europe's light sweet marker.

A report published by Argus June 14 noted that current grades Brent, Forties, Oseberg, Ekofisk and Troll are in decline, with summer loadings slumping to a record low of 600,000 barrels per day.

"Johan Sverdrup flows, by contrast, will rise as more wells come on stream. Using them to underpin the marker would perhaps be the simplest solution to its sliding volumes," said Argus.

Johan Sverdrup daily production recently crossed 500,000 b/d.

Rival PRA Platts earlier this year retreated from its proposal to convert its Dated Brent benchmark into a delivered price featuring WTI Midland, following a backlash from the industry, said the Argus report.

Platts and Argus compete on global crude oil benchmarks with Platts largely dominant in Europe and Asia, while Argus has the upper hand on US crude oil pricing.

WTI Midland

However, WTI is still likely to feature as a Dated Brent component at some point.

"…including US crude in the basket of crudes underpinning the benchmark appears to remain the favoured option of Platts and a significant part of the North Sea trading community," noted Argus.

The main stumbling blocks for the WTI Midland export grade is that it is traded on a delivered basis (rather than FOB) and cargoes are typically larger than the standard 600,000/b North Sea parcels.

An additional problem is one of transparency, as loading programs are not available.

"WTI, of course, does not have a loading program. As a result, there will always be an uncertain number of cargoes available for European buyers" said the Argus report.

The main objection to Johan Sverdrup is its quality, which at 28 API gravity is much heavier than current North Sea benchmark grades, meaning it is more fuel oil heavy and should have different pricing dynamics.

Platts proposed in February adding WTI Midland to the Dated Brent basket, but also changing the Dated quote to a CIF Rotterdam basis.

Sources said the main opposition was to the CIF Rotterdam proposal, rather than the inclusion of WTI Midland.