U.S. crude sets world's most important oil benchmark for first time

(Bloomberg) – U.S. oil is already having a profound impact on the world’s most important oil benchmark, effectively setting the price just after its inclusion in the measure.

WTI Midland — produced in the West Texas shales — joined the Dated Brent benchmark on Tuesday, in an effort to revamp a gauge that is used to set the price of more than two-thirds of the world’s crude. So far, that integration has proved successful.

bp Plc has been offering the grade for early June at a low level on a pricing window run by S&P Global Commodity Insights, better known by traders as Platts. As prices of the five other grades that comprise the benchmark were much higher, WTI Midland has essentially served as the key price maker.

“Once adjusted for freight to a free-on-board basis, offers were competitive and helped define Dated Brent over those days of the assessment curve,” Platts said in an emailed response to questions.

WTI Midland’s inclusion in Dated Brent — a pricing basket traditionally made up of North Sea grades Brent, Forties, Oseberg, Ekofisk and Troll — is the most significant overhaul of the measure in decades. But traders hadn’t expected the Texas crude to set the benchmark so soon, as its quality is similar to Ekofisk, but better than Forties, the usual price maker.

Platts on Wednesday assessed the U.S. crude at premium of about 33 cents per bbl for early June. That’s about 30 cents lower than Forties.

Dated Brent’s overhaul has been years in the making, due to the dwindling supplies of its North Sea components. Crude loadings of so-called BFOET grades are set to slide to just over 600,000 barrels a day next month, the lowest in a year, according to data compiled by Bloomberg. The addition of the US grade would bring much-needed liquidity to the benchmark.

European refineries have boosted their purchases of U.S. crudes, mostly WTI Midland, since Russia’s invasion of Ukraine last year. Shipments from the U.S. Gulf to Europe were poised to reach about 1.7 MMbpd in April, matching the record in March, according to tanker-tracking data compiled by Bloomberg.

Trading house Trafigura Group, as well as bp and TotalEnergies SE, have put seven cargoes of WTI Midland — each about 700,000 bbl — into forward chains over the past two days, the first time ever for the grade.

Chains allow a trader with forward contracts to sell a cargo of actual oil to another trader, providing a link between the North Sea’s paper and physical markets. The nomination of the U.S. grade into forward chains is regarded as one of the key indicators of the success of its transition into the Dated Brent benchmark, according to traders involved in the market.

These chained cargoes “have been kept by a range of participants, reflecting good liquidity in the new Brent assessment process,” Platts said.