US Oil Joins Global Oil Benchmark Ranking

US Oil Joins Global Oil Benchmark Ranking wsjnewspaper

US Oil: Offshore Rigs in Scotland Impact Global Crude Prices for Decades. However, all attention is now shifting to Texas.

Starting from this Thursday’s deliveries, a type of US oil will play a role in determining the price of Brent crude. This marks the first instance of a non-European grade contributing to the calculation of the global pricing standard, highlighting the transformative impact of American energy markets.

Brent serves as an international benchmark that influences the pricing of a significant portion of daily global crude and liquefied natural gas trades, connecting Nigerian oil producers and Chinese refiners to the trading screens on Wall Street. It can make or break fortunes for hedge funds, shape wartime revenues for the Kremlin, and dictate fuel costs for businesses and drivers worldwide.

Here’s how it works: Platts, a price-reporting agency under S&P Global, computes Brent based on oil transactions at Northern European terminals. Originally, the assessment focused on the market rate of crude from the Brent oil field, named after a goose, located between Scotland’s Shetland Islands and Norway.

This real-time snapshot of trade data informs financial instruments like futures and options contracts traded by investors and energy companies, particularly on the London-based trading venue of Intercontinental Exchange (ICE).

As the output from the Brent field declined over the years, posing a threat to the benchmark’s representativeness in the physical market, Platts and ICE gradually expanded the calculation to include four other grades extracted from different parts of the North Sea.

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Now, the custodians of Brent are turning to the United States for the latest adjustment to the formula.

Furthermore, experts view this change, which has been in the works for years, as a recognition of how the shale revolution has propelled the US to become an energy powerhouse.

Ten years ago, US oil exports stood at approximately 134,000 barrels per day, as per the Energy Information Administration’s data. However, today, daily exports in the first quarter of this year averaged 4.1 million barrels, surpassing the consumption of Japan.

Some analysts anticipate that the inclusion of more affordable American barrels will likely drive down average prices internationally and enhance profits for US exporters. With an increased volume of oil supporting Brent, its value should become less susceptible to market squeezes or manipulation.

“Once you become a benchmark, you have influence over all the other grades of crude,” stated Adi Imsirovic, director at Surrey Clean Energy and editor of a recently published history of Brent.

Also, In recent months, American traders, accustomed to a domestic market built around pipelines, have been collaborating with their international counterparts to navigate the unfamiliar world of seaborne trading known as the Brent complex. On Wall Street, market participants have been investing in derivatives linked to oil flowing through Houston and Midland, Texas.

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As of May 24, the average number of outstanding futures contracts tied to crude traded in these centers surged nearly 57% compared to 2022 levels, according to CME Group, the owner of the New York Mercantile Exchange.

Interestingly, however, the new Brent assessment will not include what investors commonly refer to as “US crude.” This term typically denotes the West Texas Intermediate benchmark, a domestic price gauge derived from a blend of oil grades traded at the Cushing hub in Oklahoma.

Instead, the Brent calculation will encompass oil extracted near Midland, Texas, known for its light, sweet crude, highly sought after by refiners due to its relative ease of conversion into fuels like gasoline and diesel.

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