Global Oil Benchmark Brent Could Soon Incorporate U.S. Crude
(Bloomberg) -- S&P Global Platts is considering adding a U.S. crude grade to its main North Sea benchmark, potentially transforming a marker price for millions of barrels of crude oil transactions each day.
The pricing agency has opened consultations on adding West Texas Intermediate Midland crude to the Dated Brent benchmark and is inviting feedback on the proposal until Feb. 5. Dated Brent is used to set more than two-thirds of the world’s physical oil prices and ultimately influences the price of Brent oil futures.
The move reflects the growing importance of U.S. crude internationally -- the country five years ago ended restrictions on oil exports imposed during the energy crises of the 1970s. It also serves as a reminder that supplies of some of North Sea’s grades are in decline.
“Since the restart of U.S. crude exports in 2015, WTI Midland has become a baseload grade for European refiners and a core part of the North Sea oil market,” said Vera Blei, head of oil markets price reporting at Platts.
The potential inclusion shows just how dramatically global crude flows have been upended since the lifting of the ban. Years ago, Brent crude could be delivered to the U.S. as part of the flagship American futures contract, Nymex WTI.
The U.S. exports more than 1 million barrels of the grade daily, and “its inclusion within the Dated Brent basket would provide additional volume and ensure the continued robustness of Dated Brent for the next decade and beyond,” Blei added. If approved, the change would affect cargoes starting in March 2022.
Europe imported about 443,000 barrels a day of WTI Midland -- a light, sweet crude -- in 2020, according to Platts. Those flows come amid falling production of several North Sea grades. The region’s loadings of Brent, Forties, Oseberg, Ekofisk and Troll crudes combined were about 1.2 million barrels a day in 2015. Since then, they have dropped by 21%, according to Bloomberg calculations.
In order to support the move, Platts said it would seek to publish a daily virtual loading program for WTI Midland, reflecting the cargoes available on a ship-to-ship transfer basis at the Scottish port of Scapa Flow. It also said it would consider adjusting prices for the quality of U.S. crude, something it already does for some North Sea crudes.
The pricing agency has previously consulted on adding grades from outside the North Sea to Dated Brent. Last year it chose not to follow up on a proposal that included adding WTI Midland and other grades from across the world. Instead, Platts overhauled the pricing benchmark by adding cargoes delivered to the Dutch port of Rotterdam.
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