Trafigura and Gunvor Demand Triggers Rise in Brent Oil Benchmark, Reports Reuters

By Alex Lawler

LONDON (Reuters) – Trading companies Trafigura and Gunvor purchased nine cargoes of crude oil that form the basis of the international Brent benchmark over the past week and are seeking to acquire more, contributing to the largest price increases since changes were made to the assessment method earlier in 2023.

The activity in the physical Brent market, which is a limited arena where oil majors and trading firms trade crude cargoes, is significant for both producers and consumers, as Brent serves as a pricing benchmark for a substantial portion of the world’s oil.

Movements in the physical market affect international oil futures, with futures prices climbing 6.7% in June, marking the most considerable monthly increase since September 2023, reaching $87 a barrel.

Initially focused solely on Brent, the benchmark has evolved to include additional grades as North Sea production has waned. The most recent addition, U.S. WTI Midland, was incorporated in 2023, bringing the total number of benchmark grades to six.

Since June 20, five grades—North Sea Brent, Troll, Ekofisk, Forties, and Oseberg—have seen price increases, with Gunvor placing bids for the first two and Trafigura for the last three, according to trade sources. WTI prices have stabilized after experiencing initial gains.

Trafigura has made significant purchases, acquiring seven cargoes since June 21, including four WTI cargoes on the initial day and two more during the week, in addition to a Forties cargo on Thursday. Gunvor also secured Forties and WTI cargoes on Monday.

Gunvor opted not to comment on its trading strategy, while Trafigura maintained a policy of not discussing commercial matters.

Oil analyst Philip Verleger noted in a recent report that the activities of these two firms have directly influenced market prices, contributing to the observed increase.

The dated Brent price, as assessed by LSEG, rose by over 10% during the two weeks from June 7 to June 21, marking the steepest two-week rise since March-April 2023.

The broader Brent complex encompasses dated Brent, physical cargoes, swaps, and the Intercontinental Exchange Brent futures contract, and is utilized to price more than three-quarters of the world’s traded oil.

STRENGTHENING THE BENCHMARK

Market participants have criticized the Brent benchmark for its limited underlying supply of five North Sea crude grades, which led to increased price volatility.

To enhance the benchmark, oil index publisher Platts added WTI Midland to its Brent price assessment for June 2023 deliveries.

Jorge Montepeque, who was instrumental in developing the dated Brent benchmark at Platts, pointed out that the recent trading activity aligns with the diminished supply of North Sea grades due to seasonal oilfield maintenance.

Though Montepeque left Platts in 2015 and now serves as managing director for benchmarks at Onyx Capital Group, the changes made to the benchmark in 2023 have resulted in WTI typically being more prominent than North Sea crude volumes.

Despite this, the flow of WTI Midland to Europe has decreased in June, averaging around 850,000 barrels per day, the lowest rate since 2022, according to data from Kpler.

Platts indicated that the alterations to dated Brent have been effective, with market feedback turning positive since the addition of WTI, highlighting increased participation, liquidity, and transparency.

Adi Imsirovic, director at Surrey Clean Energy and an oil trader with extensive knowledge on Brent, suggested that volatility would have worsened without the WTI inclusion.

The differential between Midland and dated Brent had averaged plus $2.43 on a delivered basis on June 21 when Trafigura purchased four cargoes but fell to plus $2.30 by Thursday as new selling interest arose. Forties prices also increased in the same time frame.

Imsirovic commented that while none of these benchmarks are flawless, Brent is currently showing stabilization.