A row has erupted between BP and Shell, the European energy giants, over ways to prevent price manipulation of crude oil from the Brent field.
Brent acts as a worldwide oil pricing benchmark from which all European, African and some Middle East crudes are priced. But with output from the field in rapid decline, concern is mounting that the market might be easily rigged.
Brent is operated by Shell, while its North Sea rival, BP, operates the Forties field. Now BP has proposed that the so-called 15-day Brent, a forward contract for the sale of crude oil cargoes, should include oil from Forties.
In a letter sent to BP and other oil traders last week, Shell said the BP proposal “would lead to fragmentation of the forward market”. The fifteen day Brent price is also used to settle the Brent futures contracts traded on the International Petroleum Exchange.
BP’s proposal would raise the amount of oil traded from 350,000 barrels a day to one and a half million. But Shell objects on the grounds that Forties crude is of a different quality and normally trades at a different price. Behind the technicalities insiders believe the row is a sign of a power struggle in the multibillion dollar oil trading market. No one is accusing BP or Shell of seeking unfair influence in the fifteen day market, but the rapid decline in Brent and the spate of big oil company takeovers has exposed the risk of one major company gaining a powerful edge in trading of oil.
A leading oil trader said: “You could end up with a situation where someone with a large appetite could buy up cargoes and drive up the value of the IPE paper futures market by creating demand for physical Brent.”