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Platts looks to cap Oman crude price after July jump

SINGAPORE - Platts is looking to revamp its pricing methodology for Oman crude after the Middle Eastern oil benchmark surged above global markers Brent and NYMEX, company officials said on Wednesday.

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The Energy pricing agency is considering authorising deliveries of alternative Middle East crude -- likely Abu Dhabi or Qatari, the only other Gulf grades that can be traded freely on the spot market -- into Oman contracts to help cap its price.

Platts, a unit of the McGraw-Hill Cos MHP.N would allow the alternatives to be delivered in lieu of Oman in trades conducted during the 0800-0830 GMT Platts trading window, which provides the basis for crude assessments.

It is also weighing the creation of the so-called "synthetic Oman", which would combine two Middle Eastern grades to produce a quality close to Oman.

"Oman in our mind ceased to work as a benchmark last month," Jorge Montepeque, Platts' global director of market reporting, told a pricing forum.

Oman crude prices rose above Brent prices for three days in a row last month. Platts' assessments of Oman crude was at the most extreme on July 28 at $129 a barrel, $4.50 above Brent and some $9.00 above Dubai prices.

Oman is a medium-heavy sour crude, a much lower quality than light, low-sulphur Brent, the benchmark for most Atlantic crude, and its climb above Brent prices was considered an anomaly.

Platts Oman prices tracked the rally in Oman futures OQc1 on the Dubai Mercantile Exchange (DME).

Traders have said Oman prices were pushed up on the DME as traders tried to fulfil short positions while sellers held off, and this came as Brent was falling sharply from records near $150 hit in mid-July.

About a third of all Oman crude output is delivered physically via the DME and a growing number of traders had been complaining that the exchange's physical delivery is abnormally large, contributing to price distortions.

The widening of a benchmark to include the delivery of alternative grades is a common fix, as production of benchmark crudes fall. Oman was itself introduced as a cap to Dubai prices in 2001, when Dubai crude output started declining and put it at risk of price distortions.

Platts Oman and Dubai quotations are used to price some 13 million barrels per day (bpd) of Middle East crude heading to Asia.

Oman's largest producer, Petroleum Development Oman, had said its output would fall to 550,000 bpd this year and would stay at that level in 2009, before rising again in 2010.

Thomson Reuters competes with Platts in providing news and information to the energy markets.