Increasing exports of light sweet crude from the US and growing demand in Asia-Pacific are combining to transform US WTI into a key pricing point for markets around the world, delegates heard today at the Argus Crude forum.
WTI's role as a provider of pricing transparency will anchor global markets as they undergo seismic shifts, from US sanctions on Iran and Venezuela to the looming International Maritime Organisation (IMO) 2020 sulphur cap, Argus speakers said.
"In every region of the world, the marker crude against which differentials are assessed is changing, whether in the US, the North Sea or Asia Pacific," said Argus Americas chief executive Euan Craik. "And the common factor that is emerging is WTI."
In Asia-Pacific, WTI is increasingly being used not only for arbitrage pricing but as a base-load crude. The region's 33mn b/d in refining capacity is adapting to take in a growing volume of the light sweet grade.
In Europe, growing imports of WTI could provide the solution to flagging North Sea output. Argus responded earlier this month to the growing need for transparent Atlantic basin pricing with its New North Sea Dated, which incorporates arrivals of WTI cargoes in Europe. Argus is running the new assessment alongside its existing North Sea Dated with a view to replacing it as the primary North Sea benchmark later this year.
Infrastructure push transforming WTI into key export grade
US crude exports had already risen to 3mn b/d in November 2018, from virtually nothing just a few years ago, said Argus vice president for business development Jeff Kralowetz, and are set for still greater expansion. Pipelines that once ferried crude north from the US Gulf coast to cities like Chicago are now moving crude in the opposite direction; on the coast, half a dozen projects are under construction that will allow ports to load Aframaxes and very large crude carriers (VLCCs).
The export growth could prove resilient even to a potential drop in crude prices. Increasingly, the US shale producers fuelling the region's production boom are hedged against a potential price drop.
"One of the effects is that when prices fall, shale producers will not, at least immediately, respond to a downturn," said Kralowetz.
Relentless Asia-Pacific demand
The fledgling US export market began by counting on China as a buyer. But China's intake of US crude dropped to zero as trade tensions rose between the two countries. Other regional buyers have stepped up to fill that gap, including notably South Korea and India, which recently signed term deals with US suppliers.
The ease with which US exporters was able to find new buyers demonstrates the growing strength and reach of the American export market, and the ample regional demand from Asia-Pacific, said Argus vice president for LPG and crude, Middle East and Asia-Pacific, Alejandro Barbajosa. While Argus expects Chinese crude demand growth to slow this year, it will still rise by 500,000 b/d; other regional nations, notably India and Indonesia, are contributing to robust growth.
As more WTI flows into the region, the grade is undergoing a transformative shift, Barbajosa said. Once an arbitrage barrel, WTI is quickly emerging as a base load for Asia-Pacific refiners.
