About 350,000 barrels per day of U.S. crude is lining up to be delivered versus the international Brent benchmark, consultancy Facts Global Energy estimated, as WTI Midland becomes the first non-North Sea grade to be included in the world’s most important oil benchmark.
WTI Midland will join the S&P Global Platts dated Brent price assessment beginning next month, boosting European demand for the Texas crude. The oil will be delivered in Rotterdam and priced to appear as a North Sea grade.
The surge in volumes points to the added importance the U.S. crude will have on the global market. The re-jiggering of Dated Brent has started to affect prompt Brent crude trade, FGE said in a report this week.
The tightening of Atlantic Basin crude balances in the months ahead are expected to drive prompt Brent spreads into steeper backwardation – a market structure in which the spot price trades higher than prices in the future, FGE said.
U.S. crude futures’ discount to Brent widened to $4.15 a barrel on Wednesday, easing after hitting its narrowest in almost a year in late April at $2.76 a barrel. A narrower discount typically discourages foreign buying of U.S.-linked crudes.
Aframax freight rates have surged ahead of WTI Midland’s inclusion into Brent, shutting for now the arbitrage window for U.S. exports to Europe and Asia in June, Energy Aspects said in a note.
Going forward, however, “we see Europe and Asia needing to pull more USGC (U.S. Gulf Coast) barrels in coming months to support peak summer runs,” Energy Aspects added.
Dated Brent is a part of the wider Brent complex including physical cargoes, swaps and the Intercontinental Exchange (ICE)futures contract. Brent is used to price over three-quarters of the world’s traded oil.
WTI Midland is the first crude from outside of the region to be added to the basket. Until now, Brent had been based on five British and Norwegian North Sea crudes, whose supplies are in long-term decline.
Source: Reuters (Reporting by Stephanie Kelly; additional reporting by Arathy Somasekhar; Editing by David Gregorio)