Are the Middle East set to switch?

 

Since Saudi Arabia switched to Argus US Sour Crude Index, major exporters in the Middle East and Latin America have expressed a "strong interest."

Euan Craik, chief executive of Argus's US operations, declined to name the countries that were studying the change but described the interest as "unprecedented."

"It feels like a sea change. It's something unprecedented in our experience," Craik said in a telephone interview to Reuters.

It was only last week that Saudi Arabia abandoned West Texas Intermediate (TWI) crude oil as the basis of its pricing formulas for US customers amid mounting frustration with the divergence between the benchmark US crude and market conditions on the US Gulf Coast.

Argus Media said when the announcement was made, that Saudi Aramco, the state-owned oil company, would switch in January to using its Argus Sour Crude Index as a pricing benchmark for oil sold in the US, instead of WTI. The abandonment of WTI, the longtime standard, for Argus's five-month-old index by the world's biggest oil exporter instantly sparked speculation that other major producers would follow.

Argus pricing

The switch by Saudi Arabia to use Argus prices is a boost for the London-based company, which competes with McGraw-Hill Companies Inc's Platts unit in providing price assessments in physical energy markets.

Analysts have described the Saudi decision as a step to realign the world oil market amid frustration with WTI, which has at times moved out of alignment with global oil trade flows due to storage and pipeline capacity constraints at its hub in Cushing, Oklahoma.

Swings in the value of WTI make it more difficult for refiners to hedge purchases of crude from distant suppliers as the price of a cargo is often set weeks after it has been purchased.

Since Saudi Arabia's move last week to adopt the Argus price reference, speculation has mounted that other sour crude producers who export to the US may follow Saudi Arabia's move.

Despite speculation, none of the major sour crude producers that compete with Saudi Arabia for US market share have made any public statements.

Venezuela

Venezuela's oil minister applauded Saudi Arabia's decision to move away from WTI, saying they may make a similar decision.

"We support (Saudi Arabia) in its decision ... a very important decision," Rafael Ramirez said on the sidelines of an oil conference, The Wall Street Journal reported

Venezuela was the third-biggest exporter of oil to the US in August, sending one million barrels a day, according to the US Energy Information Administration. Saudi Arabia was fifth, sending 745,000 barrels a day. Combined, the two countries supplied about 9 percent of US oil demand that month.

 

 

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