S&P Global Platts is to include US WTI Midland crude in its Dated Brent benchmark -- the world's biggest crude benchmark -- in a major change to what has been an exclusively North Sea-based assessment.
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Platts on Feb. 22 announced a number of changes to come into effect in July 2022, reflecting the decline of traditional North Sea crude grades such as Brent, as well as increasing flows of US shale oil into Europe.
It also said the entire price assessment process, including the five grades already included, will switch to a CIF Rotterdam basis, meaning crudes will be assessed on the basis of deliveries into Europe's largest trading hub, rather than including loadings at terminals around the region.
"These changes provide significant additional volume and will ensure the continued robustness of the Brent complex for the next decade and beyond," according to Vera Blei, Platts' head of oil markets price reporting.
"We also see it as a natural reflection of how the European refining sector has evolved. WTI Midland has really become a mainstay in the European refining slate," she told journalists.
Platts, which publishes the daily Dated Brent assessment that underpins the majority of the world's oil trade, first asked for feedback on the addition in 2018.
With the industry globally needing a reliable benchmark for physical crude, changes have been impelled by declines in North Sea output. UK production from fields such as Brent is now almost two-thirds lower than 2000 levels, at little more than 1 million b/d, with Norway now Western Europe's most prolific producer and refiners relying on crudes from around the world.
WTI Midland, produced in the Permian basin, has similar properties to conventional North Sea grades, being slightly lighter in gravity and having similar sulfur content to Norwegian grades.
The inclusion of a crude loaded as far away as the Gulf of Mexico has contributed to the switch to assessing crude prices on a delivered basis. This should simplify the overall price assessment process, and potentially any addition of other crudes in future, Platts said.
Deliveries of WTI Midland from ports in the Gulf of Mexico are expected to be in the region of 500,000 b/d, likely exceeding loadings of the current biggest contributor to the benchmark, Forties.
Together with the existing grades -- Brent/Ninian, Forties, Oseberg, Ekofisk, and Troll -- "the combined flow of light sweet crude including WTI Midland into the Northwest European market routinely exceeds 1.3 million b/d, a healthy volume of fungible crude oil grades for a robust benchmark," Platts said.
A number of technical issues will be finalized in the run-up to the change, including potential changes to trading terms in the related Cash BFOE market, which will be subject to further industry workshops, Platts said.
Platts will publish a WTI Midland assessment on a CIF Rotterdam basis starting July of this year.
Having consulted market participants, "Platts has found widespread support for the inclusion of WTI Midland in Dated Brent, Cash BFOE and all related assessments," it said.
"Platts has also received feedback supporting simplified assessments that will more effectively and efficiently reflect these flows into Northwest Europe," it said. "Both the inclusion of WTI Midland and a move to a fully-delivered benchmark will better reflect the modern fundamentals of the European crude oil market."
The last new grade to be included in the benchmark was Norway's Troll crude, in 2018.
However, the US shale boom of the last decade and the end of curbs on US crude exports in 2015 have made US crude a growing presence in Europe, sought after by refiners.
Any quality adjustment relating to WTI Midland will take place after its inclusion in the benchmark, Platts said.
For inclusion in the process, cargoes would have to meet certain criteria relating to quality and the port of loading and be declared at the time of loading, it added.