Platts issues Cash BFOE update as industry set to stick with Shell GT&Cs
Quantum Commodity Intelligence - Price Reporting Agency Platts has issued a further update for its cash BFOE methodology ahead of the inclusion of WTI Midland crude, which is effective from the June 2023 Cash BFOE contract month.
Platts said that under the updated methodology, a seller may deliver a cargo of WTI Midland on a CIF Rotterdam basis into a Cash BFOE trade, whereby the seller is obliged to charter an Aframax-sized vessel with Northwest European and Mediterranean options, with title and risk to pass from seller to buyer after the vessel leaves the US Economic Exclusion Zone (EEZ).
The statement further added: "Any WTI Midland cargo nominated into the cash mechanism should meet the following standards: a cargo of WTI Midland crude produced in the Permian Basin, which meets the Platts WTI Midland specification; it should have passed through Platts-approved pipelines."
Cash BFOE contracts feed into the Platts Dated Brent market, the world's most important physical commodities benchmark, while Brent futures are settled against BFOE through the ICE Brent Index.
The update also provided further direction on General Terms and Conditions (GT&Cs), which underpin the Cash BFOE contract, after the industry initially failed to agree on a set of terms when the WTI Midland-inclusion was announced last June.
Split avoided
"At that time there were several sets of draft BFOE terms circulating among market participants but, since then, Platts has observed industry coalescence around a single set of amendments to the forward contract," said Platts in its latest update.
Historically, Shell's SUKO 90 GT&Cs have been used in forward Cash BFOE contracts but Shell amended the terms ahead of the inclusion of WTI Midland, leading to a potential schism in the market around the standard requirements governing the BFOE market.
This included several BFOE transactions concluded using the GT&Cs of oil major BP.
However, sources said the market has since reached consensus around the amended SUKO 90 GT&Cs, although this has not been explicitly stated by key parties.
A paper published by The Oxford Institute for Energy Studies (OIES) last summer noted it would be possible for the BFOE market to function with more than one set of GT&Cs, although not ideal.
"While it would clearly be useful to have a one standard GT&Cs for the new Brent contract, it is not necessary, especially if the terms are not materially different. It is quite possible that two or more 'terms and conditions' may be used simultaneously," said the paper, authored by former senior crude traders Adi Imsirovic and Kurt Chapman.
