WTI Midland makes immediate impact on Dated Brent - report
Quantum Commodity Intelligence – The inclusion of WTI Midland as a component of the Dated Brent benchmark has had an immediate impact with the US grade dominating North Sea price-setting activity, according to analysis published by Argus Media.
The report also said WTI's inclusion is having a pricing impact on both grades, with the spread between the two narrowing sharply.
According to the research, WTI Midland dominated the Platts-operated MOC trading window during May, with more than half of the deals, bids and offers observed related to the US grade, adding the trend is likely to continue in June as WTI also ruled the North Sea forward market last month.
At least 19 cargoes of the US export grade were moved through the forward chains during June, compared with just one cargo of Forties and zero cargoes of the other four grades.
To settle a Brent cash forward position, also referred to as cash BFOE, the seller has to nominate a physical cargo of Brent, Forties, Oseberg, Ekofisk, Troll, or since last month, WTI Midland.
As the nomination process is seller's option, the lowest-value cargo will be passed into the forward chains, suggesting WTI Midland will appear in the spot market regularly over the coming weeks.
However, window activity was largely confined to stalwarts including majors Shell, BP and TotalEnergies, alongside trading houses Trafigura and Vitol.
But US trader Koch has rejoined the forward market MOC after an absence of several years, hinting US-based firms could play a greater role in future.
Pricing
Dated Brent is set by the lowest of the six grades and according to Argus research, freight-adjusted WTI was the cheapest for 13 assessment day's during May, in a month shortened by three UK bank holidays.
Forties was the lowest-priced grade for five sessions in May, having set the value on 51% of pricing days in the corresponding month last year. Brent also set the benchmark once last month, while Oseberg, Ekofisk, Troll did not feature.
As a result, Dated Brent was on average $0.04/b cheaper during May than it would have been without the inclusion of WT Midland, with the largest difference of $0.19/b occurring on 22 May, according to Argus calculations.
However, the discount could narrow further in the future if WTI flows to Europe increase, with Argus data showing the inclusion of WTI in the 2020-22 period would have reduced the North Sea Dated price by $0.75-$0.84/b.
The report also highlighted a sharp contraction in the ICE Brent/NYMEX WTI futures spread, which averaged $6/b in Q1 and $4/b during April/May. It also noted the growing importance of the freight element, which is used by reporting agencies to adjust WTI Midland to a North Sea basis value.
Argus is the largest rival to Platts' dominant position in the world of oil pricing and while Argus WTI Midland and WTI Houston assessments have an active swaps market as differentials to Cushing WTI futures, Dated Brent pricing is almost exclusively tied to Platts.
