WTI Midland inclusion in Brent provides timely volume boost - report
Quantum Commodity Intelligence – European and US sanctions on Russia oil are set to strengthen the role played by WTI Midland crude when the US grade is introduced to the Platts Dated Brent benchmark this coming June, according to a paper published by The Oxford Institute for Energy Studies (OIES) Wednesday.
Dated Brent is scheduled for its largest overhaul since the creation of BFO two decades ago, when Forties and Oseberg were introduced as supplementary grades for declining Brent/Ninian output.
The inclusion of WTI as an alternative-delivery grade will be the first time a non-North Sea grade has been introduced into the Dated Brent benchmark.
"Trading flows of oil are never permanent. But it is unlikely that Russia will be seen as a reliable oil supplier to Europe for the foreseeable future. This only strengthens the importance of WTI Midland crude in the European refinery diets and therefore in the Brent benchmark," said the paper, authored by trading veterans Adi Imsirovic and Kurt Chapman.
The paper also added that WTI Midland inclusion into Brent will also impact Asian crude markets: "Given that the Dubai benchmark is firmly linked to Brent, as it trades as a differential to Brent, increased liquidity of Brent is only good news for the stability of the Dubai benchmark."
According to the report, US crude oil exports averaged a record 3.6 million bpd in 2022, up 21% on the previous year, a figure that is set to increase over 2023.
"The US has become the crude supplier of choice for European buyers since Russia invaded Ukraine. US crude exports to Europe jumped by 426,000 bpd to 1.4 million b/d in 2022," increasing the share of US crude exports destined to Europe rose from 35% to 41%.
OIES further noted WTI Midland makes up the largest proportion of the US oil exports into Europe, currently leaving the US Gulf Coast at a rate of over 1.5 million bpd.
Exports
The Dated Brent assessment is the world's most widely used commodities benchmark, pricing tens of millions of barrels of physical crude and refined product cracks every day. It is also extensively used in natural gas contracts.
Dated Brent also underpins the huge derivatives markets, including Brent futures, cash BFOE, CFDs and DFLs.
In conclusion, the Oxford paper said that while the new Dated Brent contract still faces some hurdles, particularly around the Brent forward (cash) contract with the industry still ironing out some technical issues, it should be a success.
"The introduction of WTI Midland into Dated Brent should be relatively easy. The inclusion of the grade into the forward Brent contract, however, is much harder, given the forward nature of its delivery."
"In the long run, a successful inclusion of the US oil into the contract will likely lead to development and growth of liquid and transparent instruments for managing the risk of trading WTI Midland in the USGC. This may lead to an eventual shift in the US oil pricing from Cushing to the Gulf Coast, and a better integration of the two key global benchmarks, Brent and WTI."
