Platts

CME’s NYMEX light sweet crude oil contract in Cushing, OK, is not West Texas Intermediate — WTI. Instead, it is Domestic Sweet — commonly referred to as DSW — with quality specifications that are broader and generally inferior to Midland-sourced WTI. In fact, pristine Midland WTI delivered to Cushing sells at a reasonably healthy premium to DSW. That difference in specs, and the fact that the quality of DSW is considerably more variable than straight-as-an-arrow Midland WTI, makes most purchasers of exported U.S. crude (and many domestic refiners too) strongly prefer the more quality-consistent Midland WTI grade. For that reason, when Platts set out to allow U.S. light crude to be delivered as Brent, it said that only Midland WTI will qualify. Consequently, a marketer cannot take delivery of a NYMEX-quality barrel at Cushing, pipe it down to the Gulf Coast, and deliver it to a dock for export if the ultimate destination of that barrel is to be reflected in the Brent price assessment. The implication? There are now effectively two U.S. crude oil benchmark grades, each of which is valued differently, priced differently and used by different markets. Is this a big deal for the valuation mechanisms for U.S. crude oils, or just a minor quirk in oil-market nomenclature? We’ll explore that question in today’s RBN blog.

Like an aging pop star, price benchmarks have to re-invent themselves from time to time to maintain their status. The Dated Brent marker –– as much a survivor as Cher, still going strong at 76 –– has had successes and setbacks in the past and will undergo yet another transformation by June 2023, courtesy of price reporting agency Platts. You definitely need to pay attention to this change, because Dated Brent is used as a pricing reference not only for several crude oil streams sold around the world, but also for other commodities such as LNG, fuel oil and other refined products and petrochemicals — oh, and financial derivatives too. Also, the latest version of the price marker will include an adjusted price for the U.S.’s prolific West Texas Intermediate (WTI). In today’s RBN blog, we discuss the details and implications of Dated Brent’s latest makeover for traders, refiners and other market participants.

As the number of new COVID-19 cases continues to rise, so does the oil patch’s apprehension that crude oil prices could be poised to take another hit. If that happens, producers would have to review, yet again, their plans for optimizing production as best they can, given their pricing outlook. But producers do not all receive uniform prices reflecting NYMEX WTI for their physical barrels — far from it. Crude quality and proximity to a demand market can make a big difference in the price that the barrels will ultimately sell for. Price reporting agencies (PRAs) such as Argus and Platts track and publish these differentials. But how are those differentials calculated and how do they affect producers? Today, we discuss crude differentials and their impact. 

The Houston crude oil distribution system is gearing up to handle a flood of new supplies from over 1.7 MMb/d of pipeline capacity delivering into the region by the end of Q2 2014. A trading market is also developing for producers and shippers selling that crude to Gulf Coast refiners. New grades of both light and heavy crude are showing up – principally from the Eagle Ford, the Permian Basin, North Dakota and Western Canada. Will a new crude trading market develop in Houston to rival those at Cushing, OK and St. James, LA? Today we look at the evolving Houston crude market.

Houston crude storage and distribution terminals are getting busy fast these days as a flood of new crude begins to show up from inland production basins. Crude tank storage rates in Houston are double those at Cushing. Houston is now a trading hub for light sweet crude – as witnessed by the launch of a new Platts assessment last week. The Magellan East Houston terminal is the front line receipt point for incoming crude from the Permian Basin. Today we spotlight Magellan’s expanding Houston storage and distribution facilities.

The physical market for Brent, Forties, Oseberg and Ekofisk (BFOE) represents the delivery mechanism for ICE Brent Futures and is linked to crude oil contracts worldwide. This year the  trading in the BFOE forward market has been limited to just 20 cargoes a month from the Forties stream. Today we describe producer’s efforts to increase market liquidity.

This is Part 3 in our series on the physical Brent crude market. What follows will make more sense if you read Part 1 and Part 2 first. In Part 1 we explain that the Brent crude used as a benchmark for international pricing that underlies the ICE Brent futures contract – is made up of crude oil produced in dozens of different North Sea fields and delivered to market in four different streams – Brent, Forties, Oseberg and Ekofisk (BFOE). In Part 2 we explain the linkage between the small Brent physical crude market that trades in 600 MBbl parcels costing upwards of $60 MM at today’s prices and the Brent ICE futures contract that trades in 1000 Bbl lots. Prices in the two markets are linked together by a cash settlement process using a Brent Index price based on forward trades in the physical market. The Brent Index settlement is an exchange for physical  (EFP) mechanism that ensures convergence between futures and physical markets.

The convergence mechanism in futures markets used to be something taken for granted in international crude trading. Futures exchanges like ICE and the CME NYMEX were considered an add-on service for the oil industry to hedge price risks - secondary to the physical market. That was the old days. Now futures trading volumes dwarf physical market transactions (in Part 2 we showed that ICE Brent futures trades 500 times the physical BFOE crude production volumes each day). Nevertheless the futures contracts still have to relate back to underlying physical crude oil prices in order to function efficiently. That can sometimes cause unexpected results.

The CME NYMEX WTI crude futures contract is the underlying benchmark in nearly all US domestic crude price contracts. Differences between futures and physical trading arrangements make pricing physical WTI barrels complex. Two formula mechanisms are commonly used in physical transactions that link directly to the NYMEX settlement prices – the CMA average and WTI P-Plus. Today we conclude a two-part look at WTI spot crude pricing.

On Friday (October 19, 2012), West Texas Intermediate (WTI) crude futures for delivery at Cushing, OK closed at $90.05/Bbl – some $20 below the price for the similar grade Light Louisiana Sweet (LLS) crude sold at the Gulf Coast. We believe that price differential will fall as new supplies of domestic and Canadian crude find their way to the Gulf Coast next year (2013). Supplies of South Texas Eagle Ford are already arriving at the Gulf and a new Platts Marker price shows them being priced against LLS. Today we look at the Eagle Ford marker price and what it means for the status of LLS versus WTI.