West African crude oil swaps commenced by ICE

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The first set of derivatives linked to the West African crude oil market was launched by the InterContinental Exchange (ICE). This initiative was aimed at an industry that has called for a strengthening of the dated Brent benchmark.

Reuters reveals that traders will be able to use the ICE platform from September 17, 2018 to trade a derivatives contract linked to Nigeria’s four largest crude oil grades- Bonny Light, Forcados, Qua Iboe, and Bonga. According to a note on the ICE website, the cash settled future, will be based on a daily assessment by printing agency S&P Global Platts for a “WAF Index” backed by the four grades, each of which will cary a weighting by 25 percent.

The contract will represent 1,000 barrels of oil, which will be based on the differential of the four crudes to the dated Brent benchmark price. Dated Brent, currently underpinned by five North Sea crudes- Brent itself, Forties, Oseberg, Ekofisk, and Troll, accounts for less than 1 percent of the roughly 99 million barrels per day of global oil production.

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 are Vitol CEO, Ian Taylor and Royal Dutch Shell’s former head of crude trading, Mike Mueller.

Taylor, who heads the world’s largest oil trader, said the Brent benchmark should be broadened to include grades from West Africa, Kazakhstan, and Algeria, with the possible inclusion of Russia and the United States. He said “as an industry we have a major problem that we have to solve”.

Shell’s Mueller, who moved to Vitol to lead the company’s crude trading operations, urged S&P Global Platts in 2017, to consider including other regional grades such as Russian Urals, given dated Brent is the backbone of about two thirds of the world’s daily trades.

 

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