Light Louisiana Sweet (LLS) has become the key world benchmark, vaulting over West Texas Intermediate (WTI) and Brent to take that status, according to a new analysis by investment bank Societe Generale.
"Statistically speaking, in recent months LLS appears to be providing more information to the global markets than both WTI and Brent," the bank's analysts wrote in a note issued to clients. "With US light sweet shale oil as the new de-facto swing supply source, LLS, the US Gulf Coast light sweet marker, reflects the refining region where the most shale oil is consumed. It also reflects the relative fundamentals of the USGC and the Atlantic Basin."
LLS serves as the US Gulf coast sweet benchmark and is actively traded in the physical spot market and in the swaps futures market.
Since 2013 and particularly in recent months since last year's OPEC meeting, when producing countries declined to pull back on output, WTI and LLS have risen to prominence as the most significant price discovery benchmarks, the analysts said.
Brent has become less significant in price discovery in global oil markets, and Dubai "has been, and currently is, irrelevant in global price discovery."
As a benchmark, LLS responds to international prices, while tending to ensure domestic sweet production is absorbed in the domestic market, rather than being backed out by imports.
Most LLS is a blend of multiple qualities of crude oil, despite some offshore LLS production. Blenders will increase the supply of LLS when the price is strong, especially if LLS is strong relative to international prices. That LLS production is largely a blend enables the supply of LLS to accommodate changes in demand.
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