For a long time, friends who are engaged in international crude oil trading have known that there are two international benchmark oil prices, one is the Brent crude oil price, and the other is the WTI crude oil price.
According to foreign media reports, oil produced in the United States will join the European pricing benchmark, which reflects the growing importance of U.S. oil exports in the global energy market and the changing global market structure. Variety.
On Monday, S&P Global Platts said that starting next year, crude oil exports from the United States will be included in its pricing system. This means that North Sea oil prices, which serve as the benchmark for spot trading prices of millions of barrels of crude oil per day, will be determined in part by U.S. oil prices from next year. This news will trigger a rush to buy in the market.
Platts is a provider of energy and commodities information and the source of benchmark price assessments in tangible commodity markets. Platts assesses the price of crude oil in the North Sea, the price against which billions of dollars of oil are traded every day.
Some people may wonder, what is the difference between U.S. crude oil pricing and European crude oil pricing? What needs to be explained is that due to the different quality and types of crude oil produced in various regions, in the process of oil trading, a certain crude oil needs to be used as a unified price standard, and oil exchanges generally select the crude oil with the best sales volume and best quality. as a price benchmark.
Therefore, the New York Mercantile Exchange in the United States selected West Texas Intermediate crude oil (WTI) as the price benchmark for U.S. crude oil, while the International Petroleum Exchange (ICE) ) selected Brent crude oil produced in the North Sea as the price benchmark.
Initially, Brent crude oil, as the only benchmark crude oil, has been the benchmark for pricing of most crude oil transactions in the world. It is used to determine the price of more than two-thirds of the world’s spot oil. The price, and through a complex network of derivatives, ultimately affects where Brent futures are delivered.
However, in recent years, Brent crude oil has faced a decline in production. To cope with this situation, Platts has introduced different varieties of crude oil produced in the North Sea into its calculations to ensure that sufficient trading cargoes are included in daily pricing.
As more crude oils are added, the benchmark Brent crude oil has evolved into a basket of crude oils, including not only its namesake Brent crude oil, but also Forties, Oseberg , Ekofisk and Troll crude oil.
But supplies of other North Sea crudes are also dwindling like Brent. Currently, the combined production of these five crude oils has sometimes fallen below 1 million barrels per day, or even less than 1% of global demand before the outbreak.
To address this issue, Platts proposed a proposal in December and consulted with market participants to consider converting the U.S. West Texas Intermediate Base crude oil (WTI) was added to Brent crude oil pricing to make up for the “outdated” Brent crude oil pricing problem.
Platts’ move on Monday signaled widespread support for the proposal among market participants. WTI crude oil thus became the first crude oil to be added from outside the North Sea.
Vera Blei, Platts head of oil market price reporting, said WTI crude has become “part of the price benchmark for European oil trading”: “It has become a core part of the North Sea oil market, It plays the same role as the other five crude oils.”
This reflects the increasing importance of U.S. crude oil in the international market, and also reflects the impact of U.S. crude oil on the benchmark crude oil itself and related derivatives. significant impact on the product.
Between 2010 and 2019, thanks to the oil revolution, crude oil was developed in tight rock formations in states such as Texas and North Dakota, and U.S. crude oil Production surged, from about 5.5 million barrels per day to more than 12 million barrels per day. Although oil prices plummeted during the epidemic last year, resulting in a decline in crude oil production, WTI crude oil prices have now rebounded to above $60 per barrel, close to levels at the beginning of 2020.
In addition, the 40-year ban on U.S. oil exports was lifted in 2015, resulting in a surge in U.S. crude oil exports to Europe, with millions of barrels of U.S. crude oil flowing in every month. Europe.
Platts said it expects WTI crude oil to add more than 400,000 barrels of crude oil to Brent crude oil in daily pricing calculations.
Until now, Brent crude oil pricing has been based on crude oil trading in the North Sea. The addition of WTI crude oil means a wider range of supplies will have an impact on the benchmark price. When considering cargoes from outside the North Sea, Platts said pricing for those cargoes would be based on deliveries at the Dutch port of Rotterdam, rather than on terminal loadings across the region. The Port of Rotterdam has been trialling this approach in recent years.
The changes will require an overhaul of the trading terms that have underpinned the North Sea oil market for decades – namely the Shell UK 1990, a common set of contractual rules. These terms must be revised and new terms introduced. </p
