Platts to Change Methodology for Key Middle East Oil Benchmark Dubai, Boosting Market Liquidity and Stability.

Business Editors

LONDON--(BUSINESS WIRE)--Sept. 28, 2001

In a move that should boost price stability in Middle East oil markets, Platts, the energy information and market services business of The McGraw-Hill Companies (NYSE: MHP), will be changing the basis for assessing daily spot prices for Dubai crude oil, a key pricing benchmark for the region's supplies.

The change is likely to boost liquidity in trade contributing to the Platts Dubai price benchmark, which forms the basis of most oil term contracts in the Middle East and Asia. Middle East producers, Asian refiners and international traders have long been worried that steadily shrinking production of Dubai crude could endanger the region's pricing complex, as falling volumes have exposed the market in Dubai to periodic "squeezes."

These squeezes have ripple effects on the contract oil export prices of OPEC giants Saudi Arabia, Iran and Kuwait. A squeeze occurs when one or more players take forward positions that then allow them to control the physical supply of a commodity.

Beginning November 16 this year, Platts said, traders will have the option to deliver Oman crude -- a comparable Middle Eastern sour crude -- into Dubai contracts, effectively increasing the liquidity of the Dubai benchmark. Platts, the globally recognized pricing service, will treat such Oman sales as the equivalent of Dubai transactions.

By including Oman in Platts' proprietary Dubai price assessment -- the benchmark most producers and traders use for long-term as well as derivatives contracts -- Platts is enabling the industry to draw on a much larger pool of oil, making squeezes much harder.

"The decision to do this is the result of months of research with the industry," said Platts Editorial Vice President Neil Fleming. "We are doing this with the endorsement of a very wide spectrum of producers, traders and refiners, and we are confident the result will be a more robust set of benchmarks," he said.

Production of Dubai crude oil has fallen steadily since the early 1990s, and now equates to only about 10 cargoes of 500,000 barrels of oil each per month. The oil industry expects production to fall further over the next two years, perhaps as low as 6-8 cargoes a month. The Omani loading program, by contrast, is roughly 55 cargoes a month. The combination of the two thus offers a theoretical cargo pool of 65 cargoes.

But Platts said it did not expect the full Oman program to be delivered against Dubai. "Our initial expectation is that only two or three Oman cargoes will be delivered to Dubai bidders," said the group's Director of Market Reporting, Jorge Montepeque. Montepeque explained that for quality reasons the oil industry regards Oman as having a higher value than Dubai. Sellers of Oman crude would only be tempted to use the crude as a Dubai substitute at times when short supply of Dubai was pushing Dubai prices up, he said.

"Over time, however, as Dubai production shrinks further, we will probably see more and more use of the Oman delivery option and a smooth gravitation in the benchmark towards a leading role for Oman," Montepeque said.

Platts is also adjusting its "expiry dates" for the Dubai assessment from the 15th of each month to the last day of each month, aligning the assessment dates with those of other crude oil grades to further facilitate cross-grade trading.

Platts is the world's largest and most authoritative provider of energy information and market services, with 18 offices worldwide. Products range from real-time and Internet-based news and price assessment services, to newsletters, market reports, databases, magazines, conferences, research services, geospatial tools and consulting. Platts offerings cover the oil, petrochemical, natural gas, electricity, nuclear power, coal, bandwidth and metals markets. Every day more than $10 billion of trading activity and term contract sales are based on Platts' price assessments. Additional information is available at www.platts.com and www.plattsmetals.com.

Founded in 1888, The McGraw-Hill Companies is a global information services provider meeting worldwide needs in financial services, education and business-to-business information through leading brands such as Standard & Poor's, BusinessWeek and McGraw-Hill Education. The Corporation has more than 300 offices in 33 countries. Sales in 2000 were $4.3 billion. Additional information is available at www.mcgraw-hill.com.