The Crude Report: Potential changes to benchmark prices

Author Argus

Crude oil price benchmarks are facing some degree of change across all regions, from the various forms of WTI in the US and Brent in Europe, to the incoming IFAD Murban contract in the Middle East.

What is driving these changes and how will the global crude oil markets react?

In this episode of The Crude Report, our senior vice president Stephen Jones and vice presidents James Gooder and Josefine Ahlstrom highlight the fundamental topics that will be covered in our free crude and refined products forum at the upcoming Argus Oil Week 2021.



Argus Oil Week 2021

Date Event Time (GMT)
Monday, 22 February Argus Oil Market Discussions: Bitumen 10:00-11:00am
Register here
Tuesday, 23 February Argus Crude and Refined Products Forum 10:00-11:00am: Crude session
11:30am-12:30pm: Refined Products session
Register here
Wednesday, 24 February Argus Oil Market Discussions: LPG 10:00-11:00am
Register here
Thursday, 25 February Argus Oil Market Discussions: Marine fuels 10:00-11:00am
Register here

Transcript

Stephen: Hello, and welcome to The Crude Report, Argus' podcast series on global crude oil markets.

My name is Stephen Jones, and I'm senior vice president - oil market strategies for Argus, and today for this episode, I'm joined by my colleague and friend, James Gooder, who is the vice president of crude business development, and Josephine Ahlstrom, who is the vice president of oil products in Europe. So welcome, James and Josephine. How are you guys?

James: Good, thanks.

Josephine: Hi, guys.

James: Hi, Josephine.

Josephine: Hi.

James: Good to be with you. It's nice to have some product market expertise on The Crude Report.

Stephen: Welcome. We're gonna cover today an introduction to Argus' Crude and Refined Products Forum that's scheduled for February 23rd. So this year's gonna be pretty unique. You know, historically our event has been held in person where we've enjoyed the opportunity to network with our customers and industry participants but this year we're not gonna be able to do so for obvious reasons, in person that is, so we're going virtual. So it's pretty exciting times where we're gonna be able to engage with a more global audience that can't normally just join us in person in London for this big annual event that we host. It is one of Argus' largest forums that's held, and this year with the pandemic and everything else going on, with the global crude oil markets having taken the brunt of the Covid-19 demand drop, and now seeing so many changes in the market, I thought perhaps we could explore some of the topics that we're gonna cover and give people a sense of feel for it.

But before I do so, just for our listeners, we have a number of market discussions that will be occurring simultaneously around our annual event. On Monday, February 22nd, we’ve got the LPG Market Discussion. Then we'll have the actual forum itself on the 23rd, on Tuesday, followed on Wednesday with the bitumen discussion on bitumen, asphalt markets, and then on the last day, the following day, on Thursday, we'll have the marine fuels forum discussion.

So we're gonna cover the whole program we'd normally do in person, so, you know, this is gonna be pretty exciting times to have such a large global participation in these different discussions. But let's pause there and let me let James give us a view of what's gonna happen in the crude coverage of the actual forum itself. James?

James: Thanks a lot, Stephen. Yeah, I mean it seems like a lot longer than a year ago when we were last gathered for these events, and of course everything was in person, though that was just when the pandemic was starting to break. So I remember some of us had to quarantine after the last...after some of these events in London last year. And so much has changed since, but in some ways it's like we are back to business, like it's been a year of kinda survival mode in the markets in some ways, very volatile, very unprecedented prices. We saw negative prices in the States, we saw very unusual spreads between different crudes, so this is a good opportunity to kind of take stock of where the market is today, and also as well as the kind of fundamental discussion of where the market has gone. Benchmarking is back on the agenda. Anyone who's come to the Argus forum in the past will know that this is our bread and butter, and we want to talk about where some of the discussions have moved in the intervening months.

So in the crude session I'm gonna be inviting some of my colleagues from Asia, Azlin Ahmad who edits our crude report in Singapore, and also Jeff Kralowetz who's our...he's my counterpart in Houston, and we're gonna talk about some of the hot topics in crude today. So Jeff's gonna be talking about the maturity and transparency of the US Gulf market now and how that region is evolving. It's all about infrastructure, and it's so connected now that a lot of the big spreads have narrowed, but also, you know, investment in the upstream in the States has taken a bit of a hit as it has everywhere, a sort of an expectation of payments back to shareholders rather than investing more. So where is production going and what does it mean for the exports in the future? And so we're gonna be looking at some of the contracts along the US Gulf coast, the WTI Houston MEH index that we publish has gone from strength to strength.

We also have new indexes like AGS, the American Gulf Coast Select price, which is bringing the pipeline and the export market together. So we'll be looking at some of those issues and seeing how they've performed and how they're likely to develop. Then I'll take a look at what's happening in Europe where WTI is a big part of the crude mix here in Europe now, but also has retreated so much because of those falling production trends that we've seen in the United States. There's a big debate going on about whether WTI ought to be part of the Dated Brent basket, and that's something we've discussed in previous years. It's back on the agenda. And then also, another thing that's changed in the past year is that Johan Sverdrup, which is the big new crude stream from Norway, the biggest stream of all in the North Sea after just a few...well, just a year, there's now a lot of demand for market transparency around that crude, and we are already taking some steps with the market to bring transparency to that very important market. So that's Europe.

And then over in Asia there's a lot of focus in the Middle East as a brand-new futures contract, the IFAD Murban contract from the Ice Exchange is gonna be launched very soon, and that could be a game-changer. It's certainly a new option for pricing of crude out of the Middle East on that all-important aisle to Asia. And so that's what we're gonna be talking about over there. We're gonna be showing that we have a whole bunch of new differential prices against those Murban levels so that people will be able to think about new ways of pricing the Asian market. So that's my quick global roundup. There's plenty more to talk about, but come and see us on the 23rd and we'll give you all the details.

Stephen: That's fantastic, James. That is an extraordinarily rich program ahead, and I'd like to remind everybody that even though that covers a lot of ground, and the market is extraordinarily volatile, and a lot of uncertainties plaguing us, we just finished the Crude Live event last week and planning for this February 23rd event. There's a lot of material to cover, but it is an hour-long session for the crude, and we'll have an hour-long session for the products coverage that correspond to these crude oil market developments. So please join us on the 23rd. And realize that even though there's a lot of ground to cover, it's only an hour for each of the sessions, so please do take the time to join us, because as you can hear from James, it's gonna be extraordinarily packed. An hour well worth your time.

And with that in mind, you know, with the demand impacts in the market, and the crude markets having to adapt rapidly through the past year's loss in demand and support and rebalance in the market, it leads and begs a lot of questions around the refined products markets and what's happening with the broad energy transition, but more so in the pump market, what's happening with renewable fuels and sustainability of the refining system itself. And so I'll be hosting the forum session on oil products with my colleague, Josephine, who's here to give us a flavor for that program. I'll kick it off in covering some of the global refined products marketplace developments and what's going on in the funding sector specifically, and what kind of pathway might we be on for recovery, and what that might look like. But Josephine, do you wanna give us a little flavor for what our customers and participants in the program might expect to hear on the product session?

Josephine: Yeah, sure. Thanks, Stephen. Yeah, so, you are thankfully now setting the global theme for us, that forum for refined products. What we will also talk about, looking specifically on Europe, it will be myself then and Elliot Radley, my editorial colleague, is the very extreme refinery climate we see at the moment. European refineries as in many parts of the world are really struggling margin-wise. We have not seen these bad margins for almost 20 years, where we have...I mean, for example, jet margin's just about $4 a barrel, we're talking about last week around diesel under $6/bl, so much less than half what it normally is. So it's, using the word James said before, it's quite unprecedented here what we're seeing at the moment going on in Europe, and also the times that we may be heading into. The question we ask ourselves, is this a blip, or is it really a structure change going on? And to answer that question, well, we will look at what is different this time. We had bad times before, but what is different this time, and what does it give us in terms of insights on where the changes we then may see ahead. The question is, of course, what will happen with refiners going forward. I mean, discussions about mothballing and expansions, or transformation to buy refineries and so on. But I think the key thing we also ask ourselves is, is, with the Covid-19 pandemic, are we seeing even the energy transformation accelerated? So do we have actually a combination now of very low refinery margins, plus sustained and increasing pressure for environmental change in terms of renewable energy.

That leads us into the question about what is the future of internal combustion engines? Will the electrical vehicles...are they taking over? So is the death of our internal combustion engine at the horizon? But also, maybe it's not over. I mean, you have to listen in to see what we think, but the point is that we do...we'll discuss in detail what the liquid fuels demand will look like possibly 10 years from now going forward. The question that is also important here is, of course, what kind of technologies are coming into place and what kind of products will be the...so what are the technologies and what are the products of choice as we are embarking on this big energy transformation? It's a very exciting time. It's very difficult to say where we will end up at, however there's some clear signs on what we see is happening already in the markets, for example in terms of pricing, the place where we at Argus operate. So do tune in. It will be great to have you there. We have a Q&A as well, don't we Stephen?

Stephen: We sure do.

Josephine: So anyone asking questions can do that, and we will do our best to answer them.

Stephen: Yeah.

Josephine: Instead of meeting you in person we will try to do that virtually, definitely.

Stephen: Well, I look forward to the program, and well-positioned, James and Josephine, in terms of what we're gonna cover. I look forward to helping pull off the forum with you guys for our customers and our partners that'll be listening to the forum and participating with their live Q&A. As you can see, there's gonna be some significant coverage of the crude oil market benchmarks, and all the pathway fuels, and the oil products side of the forum, as well. As the energy transition clearly is getting underway and momentum will be building, there's a lot of transformation that's happening within the industry, and it is beginning at the grassroots with a lot of the key pricing and benchmarks that Argus carries forward.

So with that, I encourage you to look at Argus' website under the webinar section of the website is where you go to register, where there's information related to this 'cast, this transcript of our brief program overview right now. That should provide a link for you, as well, to get registered for the forum. So we regret that we won't be able to see you in person, live, as we normally would in London, but this'll be the next best thing, and actually have a broader participation for those that may not be able to have traveled in the base case anyway. So with that, we wish you good health and happy trading with the market ahead, and we look forward to discussing these topics.

Thank you, James. Thanks, Josephine. Looking forward to our forum together in a few weeks' time. Thank you.

James: Thanks, Stephen. See you soon.

Stephen: See you.

Josephine: Great, see you then. Thanks, Stephen.