Dated Brent, used to price more than half of the world’s crude, is becoming less “effective” because North Sea output is dwindling and much of what remains is being shipped to Asia, Taylor said at International Petroleum Week, a conference in London organized by the Energy Institute. Oil prices may advance this year because of supply disruptions in Libya, Nigeria and other countries, and stronger-than-anticipated demand in developed economies, he said.
“We are extremely concerned about Brent already not becoming a very efficient or effective benchmark,” Taylor said. “It’s quite a concern when you see that production profile. Maybe the time has come to really broaden out Dated Brent.”
Dated Brent is failing to represent the market situation in Europe because in some recent months about 60 to 70 percent of North Sea grades that make up the marker are sold to Asia, Taylor said. The benchmark currently comprises Brent, Forties, Oseberg and Ekofisk crudes. Geneva-based Vitol, the world’s largest independent oil trader, had revenues of $303 billion in 2012, according to the company’s annual report. Figures for last year have yet to be released.
Nigeria’s Bonny Light, Qua Iboe and Forcados crudes, Algeria’s Saharan Blend and CPC Blend from the Caspian Sea could be added, as well as North Sea grades DUC and Troll to improve Dated Brent, Taylor said. Eventually Russian Urals, a higher-sulfur crude than the North Sea grades, could be included in the pool of crudes, he said.
Global oil markets are “looking rather tight” as supply disruptions offset surging U.S. output and prices will “if anything go up not down” this year as consumption in the U.S. and other advanced nations beats expectations, Taylor said. There is unlikely to be additional supply from Iran on world markets this year despite some easing in international sanctions against the country, he said. Libya, where exports have been curbed by protests, will be a more important focus for the market this year, Taylor said.
“I don’t think Iran is going to be solved any time soon, therefore it stays where it is,” in terms of exports, he said.
The retreat of investment banks from global commodities market in response to stricter regulation is harmful for liquidity, Taylor said.
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