Oil Supply Boosts in U.S., Russia to Spur Benchmarks, Argus Says
Saturday, 25 February 2012 | 00:00
Rising U.S. and Russian crude production will probably spur the use of new benchmarks, Argus Media Inc., an energy news and pricing agency, said.
Light Louisiana Sweet (USCRLLSS) and East Siberian Pacific Ocean grades, or LLS and ESPO respectively, are becoming more relevant markers as the U.S. boost shale crude output and Russia raises production from its eastern fields.
“The industry should probably look to nurture benchmarks in the Gulf Coast and Russia’s Kozmino port because there is declining supply behind the benchmarks in the Middle East and North Sea,” Dan Massey, president of Argus Media, said by phone from London yesterday.
As oil-product exports from the U.S. Gulf increase, the refining hub is becoming more important as a center for pricing both high-quality crude and cheaper grades with higher sulfur, Massey said. U.S. benchmark West Texas Intermediate is today trading at about $17.50 a barrel less than North Sea Brent futures amid rising stockpiles at Cushing, Oklahoma, the delivery point for WTI contracts.
“The actual physical price is going to be set at the Gulf Coast,” he said, citing rising trading volumes for LLS and the Argus Sour Crude Index, the reference for as much as 23 percent of U.S. oil imports, including shipments from Saudi Arabia, Kuwait and Iraq.
Increasing exports from Russia’s ESPO pipeline system, which will be able to transport 900,000 barrels a day by early next year, may boost the blend’s use as a benchmark, he said.
“The spot markets thrive where there is excess supply,” Massey said. “In markets where there is a shortage, you have less valid benchmarks.”
Argus’s competitor Platts, the energy news and pricing unit of McGraw-Hill Cos., said on Feb. 20 it may add more grades to its North Sea Dated Brent (EUCRBRDT) benchmark. The marker, used to price more than half of the world’s oil, composed of Brent, Forties, Oseberg and Ekofisk crudes.