<article><p><i>WTI set the price of North Sea Dated on only three occasions in August, but has nonetheless become a key component of the marker, write Michael Carolan and Lina Bulyk</i></p><p class="lead">WTI ceded its primacy in North Sea crude pricing in August as Asian demand pulled the US grade east and local streams set North Sea Dated instead.</p><p>The switch came as something of a surprise for WTI as the newly minted member of the North Sea benchmark club. The light sweet grade joined the North Sea Dated basket in May and immediately dominated pricing dynamics around the benchmark. It set North Sea Dated most of the time in May and June as the lowest priced of the now six grades eligible for delivery into forward contracts. The pattern shifted somewhat in July, when WTI set North Sea Dated less than half the time, and seemed to vanish in August, when WTI was the lowest-priced grade on only three out of 22 trading sessions.</p><p>WTI's waning impact was evident in comparative pricing. North Sea Dated was only 3¢/bl lower in August than it would have been had the basket excluded WTI and North Sea Dated was based on just Brent, Forties, Oseberg, Ekofisk and Troll. WTI's impact in July was a 5¢/bl drop in the North Sea Dated price, while in June it was a downward pull of up to 28¢/bl.</p><p>Rising Asian demand for US crude is the reason for WTI's diminished role in North Sea pricing. Saudi Arabia's production cuts and higher delivered prices for Russian crude have prompted refiners in Asia-Pacific to look for alternative grades, including WTI. The higher competition for cargoes loading at the US Gulf coast boosted the price of WTI delivered to European ports, lifting it above Brent and Forties when adjusted for freight.</p><p>Tight supplies in Asia-Pacific could continue to support WTI. But the new trade month suggests that this will not necessarily be the case. WTI has been relatively weak, dragging down the benchmark by as much as 30¢/bl on 5 September before it returned to parity two days later (see graph).</p><h2>Top influencer</h2><p class="lead">WTI will inevitably continue to heavily influence North Sea pricing as regional output declines. Production of the five North Sea grades in the basket has fallen in each of the past seven years. Brent, Forties, Oseberg, Ekofisk and Troll loadings are on course to fall below 650,000 b/d this year — less than one Aframax cargo a day — a drop of 9pc from last year (see graph).</p><p>And while Asian demand has affected WTI prices, it has not significantly affected the amount of crude going transatlantic. A record of almost 2mn b/d arrived in Europe in August, up from 1.8mn b/d in July. Most of this would have traded in July, when the price of WTI was relatively low in Rotterdam. Even so, exports to Europe in the second half of August — when WTI was priced above Brent and Forties — were still 1.7mn b/d. Combined loadings of the benchmark's five North Sea grades, by contrast, will be just 513,000 b/d this month.</p><p>Trading firm executives mostly agree on the benefits of adding WTI to North Sea Dated. The move was needed and is working, Vitol chief executive Russell Hardy told the S&amp;P Global Commodity Insights Appec conference in Singapore on 4 September. "It is an important liquidity injection from a physical point of view," he says. "Brent is still doing its job as a benchmark."</p><p>WTI has succeeded in boosting the declining liquidity of physical crude underpinning North Sea Dated so far. Bids and offers continue to appear daily in the afternoon trading window. But it has also exposed the benchmark to factors not directly related to the European crude market. Asia-Pacific fundamentals now have a direct effect on the North Sea's main benchmark — directly influencing its price and potentially paring the liquidity underpinning the benchmark should flows move away from Europe.</p><p><div class="picture"><div><span class="pic_title">WTI impact on North Sea Dated</span> <span class="units"></span></div><img src="https://argus-public-assets-us.s3.amazonaws.com/2023/09/07/page5anorthsea8sep07092023044539.jpg"></div><p><div class="picture"><div><span class="pic_title">North Sea benchmark crude output</span> <span class="units"></span></div><img src="https://argus-public-assets-us.s3.amazonaws.com/2023/09/07/page5bnorthsea8sep07092023044625.jpg"></div><p><div class="picture"><div><span class="pic_title">WTI loading destinations</span> <span class="units"></span></div><img src="https://argus-public-assets-us.s3.amazonaws.com/2023/09/07/page5cnorthsea8sep07092023044723.jpg"></div></article>
