Brent Crude Oil Trading operations—The Rise and Fall of ‘Clocking’

Abstract

This chapter explains why the Brent operations are very different from the operations of other oil contracts. The nomination procedure, from seller to the buyer and with a sharp deadline for passing the nominations at five a clock London time, created such pressures on the operators that multiple phone lines and atomic clocks were used to avoid the infamous ‘clocking’, a situation in which a nomination could not be passed on to another buyer and large financial loss was almost guaranteed. With each physical Brent cargo trading many times, the resulting ‘daisy chains’ created headaches for the operators as the full set of documents, issued once the physical cargo has loaded took many months and even years to through the trade chain (including banks) to reach the end receiver. This resulted in extensive use of the letters of indemnity (LOIs), which unfortunately, could lead to lengthy and costly legal actions.

Clocking is a term used by market players when the nomination from the seller to the buyer could not be passed any further down the Brent chain, due to the contractual time limitation of five o’clock in the afternoon, London time. It is described in detail in this chapter.