Brent Crude Oil: Genesis and Development of the World's Most Important Oil Benchmark

Description

In 2023, the Brent oil benchmark, a key international oil price marker for global crude oil underwent a substantial change. It incorporated another key benchmark, West Texas Intermediate oil from Midland, produced in the US and sold into European and Asian markets. Brent is used to set prices for over 70 per cent of global crude oil, so this fundamental change in the composition of the benchmarks is making some observers question its future development and even its survival. Lessons from the past are very important for the future, particularly in this case. This book revisits the history and genesis of the Brent oil benchmark and how it came to dominate the global oil market for oil. With chapters written by the individuals involved in trading and shaping the market, it brings the richness and texture to the usual historical narrative by recalling the events, companies and people who shaped its history. It introduces the historical background to the international oil markets and the reasons for a move from OPEC-set prices to oil benchmarks. It discusses the role of the North Sea in the international oil markets, as well as the role of the British government in the British national oil and gas monopoly (British National Oil Corporation or BNOC). The development of the North Sea oil, which coincided with the liberalisation policies in the UK and US, is also discussed, alongside the challenges of the oil exchange (International Petroleum Exchange) in London, the home of Brent and looks at the failures, attempted takeovers, and its eventual sale to the Intercontinental Exchange (ICE). It finally discusses the growing market ecosystem of the price reporting agencies (PRAs), which play a key role in establishing the value of the Brent benchmark. Contents Notes on Contributors 1 Introduction Complexity of Brent Economic History as a Guide The Layout of the Book The Mission Notes References 2 The Age of Oil Benchmarks OPEC Pricing System Collapses Markets, Market Power, and Monopolies in the Oil Market Oil Producers in Charge Spot Markets and the Age of Benchmarks Notes References 3 Spinning—Like a Circle in a Spiral Genesis Exodus Revelations Brent Spinning—A Broker’s Perspective—Nigel Harris Notes Bibliography 4 Brent—Creating Exceptionalism The First Sullom Voe Cargo The Business of Trading The Trader and the Tax Collector Brent Teething Pains The Wall Street Refiners Place and People Conclusion Notes Bibliography 5 Brent Legacy Heather and Brent Partials All Roads Lead to Brent Physical, Forward and Futures Brent Derivative Brent Contracts Operational Tolerance and Brent ‘Chains’ Platts Window Pure Brent Trading Market Changes Financialisaton Convergence Privilege Notes 6 Brent Crude Oil Trading operations—The Rise and Fall of ‘Clocking’ History Arrival of 15-Day Trading Pass the Parcel Failed Physical Market Squeeze Book Outs BP-ETSA-Phibro-Aron-Arcadia-TWO-ETSA-Shell-Refinery Payment Terms Paper Chase and Letters of Indemnity 15 Years of Operating Brent Notes References 7 Brent and the International Petroleum Exchange Establishment of the IPE Launch of Brent Futures Demutualisation Enron Online Intercontinental Exchange Acquisition of the IPE The Transition to Electronic Trading Regulated Benchmark Evolution Notes Bibliography 8 Brent and the Price Reporting Agencies Dawn of the Crude Oil Market The Trouble with Crude Oil Unintended Consequences of Tax Rules PRAs—Volume, Transparency, and the Dawn of Real-Time Assessments Evolving Methodologies Brent Starts to Run Out and the Birth of “Pool Pricing” Regulators Take an Interest Twenty Years On A Transatlantic Merger Notes 9 Crossroads: Past, Present and Future of Brent Crossroads—Present Past The Future of Brent Notes References Index