Brent is by far the most important crude oil benchmark in the world, with well over 70% of all global crudes tied either directly or indirectly to the North Sea crude’s price. But the original Brent crude oil production is almost played out, with all of the offshore Brent producing platforms soon to be decommissioned. This might seem to be a big problem, but in the world of crude oil trading, it is a total non-issue, because Brent is no longer simply a grade of crude oil. It is a multi-layered matrix of trading instruments, pricing benchmarks, and standard contracts linked together by price differentials traded across a number of mechanisms and platforms that form the foundation of a robust, vibrant, and extremely important marketplace. Today, we delve further into the mechanics of the Brent complex, the key components that make it work, and the transactional glue that binds them together.
This is the second part of our series on the Brent crude market. What follows will make more sense if you read Part 1 first. In that episode, we explored the history of Brent, from discovery of the prolific North Sea oil field in 1971, through the development of protocols for the sale and trading of physical Brent cargoes loaded at the Sullom Voe terminal near Shetland, Scotland; the development of Brent as a benchmark price for both North Sea and other global crudes; the role of PRAs (price reporting agencies) — primarily Platts — in the assessment of the benchmark; and the decline of physical Brent crude production in the 1980s and 1990s. The four Brent platforms shown below in Figure 1 will soon be decommissioned, and physical Brent crude will be no more.
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