Has This Change Put Brent’s Benchmark Future on Shaky Ground?

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Since 1990, Royal Dutch Shell (NYSE:RDSA)(NYSE:RDSB) has been the custodian of the terms that govern the North Sea Brent crude market, and the oil and gas company used its status to rewrite the rules for the benchmark that prices billions of dollars of oil worldwide, sparking a debate over whether the benchmark was in need of a reform.

In an amendment of its SUKO 90 contract terms and conditions, Shell announced Friday that it will begin requiring buyers to pay a premium for North Sea oil grades sold in the Brent Blend forward market. The price of 25-day forward contracts for Brent, Ekofisk, and Oseberg oil will be set at a “quality premium,” based on their price difference relative to the cheaper Forties Blend grade.

The Quality Premium will be applied to BFOE forward contracts — including Brent, Forties Oseberg, and Ekofisk crudes —  beginning on Monday, and will apply to all cargoes loading in May.

“The new robust and transparent Quality Premium mechanism will support the Brent benchmark by allowing for more crude grades and cargoes to be used in establishing the underlying market price,” Shell spokesman Jonathan French told Bloomberg in an emailed statement. “It will therefore contribute toward higher liquidity and better price discovery.”

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