Will the new Brent sink or swim?
of Brent crude has a decent claim to be the world’s most important number. Two-thirds of the 100m barrels a day of oil traded globally derive their price from it. So do millions of futures contracts that buyers and sellers employ to manage risk. Some governments use the oil price to set tax rates; customers, for their part, are exposed through heating-oil and petrol prices. Dated Brent, as the benchmark is formally known, also anchors markets beyond petroleum.
Worries that Dated Brent might become insufficiently liquid have a pedigree. Output at the eponymous field peaked in 1984; now just two or three cargoes a month are loaded. Starting in 2002, four blends from other fields were added to the pool. This buoyed volumes of Brent-graded cargoes, facilitating price discovery. It also made the price-reporting agencies’ job fiendishly complex.
Because Brent deliveries are priced up to 30 days in advance, the inclusion of Midland started coming into force in May. The market so far seems to be accepting the change. The price difference between Brent forwards and futures , which is positive in a healthy market, has returned to near usual levels, notes Mr Imsirovic. It had contracted when the change was first discussed.
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