WHITE PAPER
Dated Brent as a solution to
pricing of crude oil in Asia
October, 2008
By Thomas Giaever-Enger and Daniel Booth
Dated Brent as a solution to
pricing of crude oil in Asia
WHITE PAPER
DATED BRENT AS A SOLUTION TO PRICING OF CRUDE OIL IN ASIA
A decline in the production from major crude fields in Asia has
encouraged refiners to start pricing crude oil supply contracts using
Dated Brent as a reference price in an increasing number of contracts.
Currently, only three cargoes of Dubai are regularly made available
for spot purchase and retrade in a given pricing month. Only one,
600,000 cargo of Tapis is exported into the spot market.
Historically, the pricing of crude oil delivered to refineries in Asia
has been dominated by a few benchmarks, representing giant
fields in each category of crude oil quality.
Similarly, only 300,000 barrels of Minas is currently made available each month in the spot market, and 2 million barrels of Duri,
equivalent to a third of production.
For sour (high sulfur) grades of crude from the Middle East which
make up the bulk of Asian refinery processing, Dubai from the
United Arab Emirates has served as the prevailing proxy for almost
all barrels.
In some cases, the use of similar crude oils for alternative delivery
against the benchmark can make up for declines in production of
the brand-name crude oil itself. In the case of Dubai, alternative
Middle East sour crudes Oman and Upper Zakum have been made
available to substitute for delivery of Dubai. There are around 42
cargoes of Oman and 33 cargoes of Upper Zakum produced per
month, helping to guarantee the long-term health of Middle
Eastern sour crude oil as a benchmark reference price.
Malaysia's Tapis crude oil, from the South China Sea offshore
Malaysia's Terengganu state, has been widely used benchmark for
light (high API density), sweet (low sulfur) crudes and condensates
produced in the Asia-Pacific region.
Meanwhile, waxy Indonesian Minas (‘Sumatran Light’) and viscous
Duri (‘Sumatran Heavy’) from Dumai terminal have served respectively as benchmarks for medium, sweet crudes, and for heavy,
sweet crudes produced in the Asia-Pacific region.
But in recent years, production has dwindled from these former
giants. Critically, the number of cargos available for trading in the
spot market has plummeted as a result.
Dubai has shrunk from a peak of around 383,000 barrels per day
(or 23 cargoes of typical 500,000 barrels per month) to 68,600
b/d currently (4 cargoes per month); Tapis from 360,000 b/d (or
18 cargoes equivalent of maximum 600,000 barrels) to 280,000
b/d currently; Minas from a peak of around 420,000 b/d (or 18
cargoes equivalent of maximum 700,000 barrels) to below
200,000 b/d currently; and Duri from a peak of 325,000 barrels
per day (or 14 cargoes equivalent of maximum 700,000 barrels) to
around 200,000 b/d currently.
However, in Asia-Pacific, there are no new giant crude fields which offer
reasonable alternatives as benchmarks for Tapis, Minas and Duri.
The Asia-Pacific, sweet crude benchmarks have therefore deteriorated as meaningful benchmarks for other regionally produced
grades. Refiners and traders in the marketplace have begun to
allocate an increasing proportion of their pricing exposure to
European light sweet benchmark Dated Brent as a result.
Dated Brent is used in spot and long-term contracts to value as
much as 60% of the 85 million barrels of crude oil worldwide. The
term ‘Dated’ refers to the physical cargo price for North Sea Brent
crude (or Forties, Oseberg or Ekofisk crudes deliverable at parity to
Brent) which has been allocated its forward loading date.
Australia's new heavy sweet crude field, Stybarrow, has been sold
priced off Dated Brent assessments for about 40% of production,
instead of Minas, which would have been the expected benchmark
historically.
Proportion of crudes consumed by typical refineries in Asia-Pacific
100
80
60
40
20
0
China
Japan
India +
Pakistan
West African
Source: Platts
Copyright © 2008 Platts, All Rights Reserved
South Korea
Indonesia
Asia-Pacific
Taiwan
Singapore + Asia-Pacific
S.E.Asia
Average
Middle Eastern
Dated Brent as a solution to
pricing of crude oil in Asia
WHITE PAPER
Volume and sources of crude oil consumed in Asia-Pacific
Million b/d
10
8
6
4
2
0
China
Japan
India +
Pakistan
South Korea
West African
Indonesia
Asia-Pacific
Taiwan
Singapore +
S.E.Asia
Middle Eastern
Source: Platts
At the same time, the most equivalent heavy sweet crude oil
benchmark by quality, Duri, has been shunned as a workable pricing proxy for the new crude.
mately 1.68 million barrels per day of Asia’s total 2.87 million barrels per day of West African crude oil production, which combined
accounts for about 11% of the Asian crude slate.
Analysis of the consumption patterns of Asian refiners also reveals
an increasing prevalence of Dated Brent pricing, through growing
demand for West African sweet crudes, which price almost exclusively off Dated Brent. Asian refiners combined consume around
7.36 million barrels per day of Asia-Pacific sweet crudes, accounting for about 28% of the crude slate in Asia.
West African sweet crudes notably also make up 20% of the
Chinese refinery slate of crudes, much larger than the usual 5 to
10% of West African grades used by most Asian refiners to blend
with their imports of staple Middle East crudes. At a combined
15.88 million barrels per day, these heavier, more sulfurous grades
comprise around 61% of the Asia slate.
This pricing trend was particularly a result of China’s strong oil
demand growth in recent years. China alone accounts for approxi-
Benchmark proportions used in Asian Crude Index (ACX)
Murban (6%)
Asia Dated Brent (11%)
Upper Zakum (17%)
Bonny Light (5%)
Forcados (4%)
Cabinda (3%)
Tapis (10%)
Oman (17%)
Source: Platts
Dated Brent as a solution to pricing of crude oil in Asia
To meet the changing appetite of Asian refiners for Dated Brent
pricing, Platts has launched an Asian Dated Brent assessment,
which accounts for change in prices from market close in Europe to
market close in Asia. This aligns Dated Brent pricing in Asia with
assessment of Middle East and Asia Pacific benchmarks at market
close in Asia at 0830 GMT.
In order to reflect the overall pricing exposure of a typical Asian
refiner, Platts has designed the Asian Crude Oil Index (ACX). The
ACX is an independently calculated index, used for settlement purposes of futures and options contracts. The index composes representative crude oil benchmarks, as assessed by Platts on daily
basis, in the following proportions.
Minas (8%)
Duri (2%)
Dubai (17%)
PLATTS LAUNCHES NEW BENCHMARKS FOR
CHANGING MARKET
Middle East sour crudes are represented by Dubai (17%), Oman
(17%), Upper Zakum (17%) and Murban (6%); Asia-Pacific sweet
crudes are represented by Tapis (10%), Minas (8%) and Duri (2%);
West African sweet crudes are represented by Bonny Light (5%),
Forcados (4%) and Cabinda (3%); and adoption of Asian Dated
Brent pricing is accounted for (11%).
Page 3
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For more information contact:
Thomas Giaever-Enger
Tel: 1+65 6530 6584
Email: [email protected]
Daniel Booth
Tel: +65 6530 6501
Email: [email protected]
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