The US Gulf Coast: Where demand for Midland-quality crude converges
The US Gulf Coast has become one of the most liquid and transparent crude markets in the world, producing price indexes that are used widely in both the domestic refining market and in trading hubs around the world.
With totals exceeding 5mn b/d of pipeline capacity, 4mn b/d of refining demand and a plethora of crude export dock capacity between Houston, Corpus Christi and Beaumont/Nederland, this nexus of supply and demand at the Gulf Coast now serves as the clearing market for US light tight oil, and this transparency and volume of active trades are the foundation of the Argus American GulfCoast Select (AGS) indexes.
The AGS indexes are a composite price that captures the trade of Midland-quality WTI in both the waterborne and coastal refinery markets, and reflects the myriad fundamentals affecting the US Gulf Coast crude price each day by including price data for bona fide trades done each day at both designated onshore terminals and at multiple dock facilities. The AGS indexes are helpful in illuminating the arbitrage for US crude in global markets, removing the complexity of buying US crude on an fob basis at the US Gulf Coast and provide a useful reference in domestic crude trades.
About Midland-quality crude
The Gulf Coast crude market has coalesced around a clear understanding of the quality defined by Midland-quality WTI arriving directly from the Permian basin. Some contracts now carry the definition “standard Midland-quality WTI”, and both the Enterprise ECHO terminal and the Magellan East Houston (MEH) terminal at Houston now publish monthly quality averages of Midland-quality WTI moving through their facilities. These averages typically differ by less than 0.5° API and by just a few hundredths of a percent of sulphur. This understanding of Midland-quality WTI arriving direct from the Permian has been embraced across the Gulf Coast, and this is the quality of crude on which the Argus AGS indexes are based.
ARGUS WTI Houston at MEH
- Argus will continue to publish WTI Houston daily as both a differential to Cushing and as an outright price.
- The existing Argus WTI Houston price index at MEH will continue to be used as the settlement mechanism for the HTT and ACM financial swaps.
- MEH trades currently included in the Argus WTI Houston index will also be part of the pool of pipeline and waterborne trades setting the AGS index.
How will pipeline and waterborne trades from different locations be included?
Both pipeline and waterborne trades are normalized for both volume and location.
Pipeline trades (typically traded in barrels per day for pipeline delivery throughout the delivery month) will be converted to an outright month volume. For example, a pipeline trade done for 1,000 b/d (pipeline) would be converted to an outright volume of 30,000 bls.
Waterborne trades are normalized as if they were done for delivery at Enterprise’s ECHO terminal just south of the Houston Ship Channel. Historical data show that trades at the various locations in Houston have fairly constant price differentials from each other. Historical spreads between locations guide our conversion factors to normalize trades to ECHO. For example, if a trade at EHSC is typically valued at a 50¢/bl premium to ECHO, Argus would normalize a $41.00/bl trade at EHSC to $40.50/bl before including it in the AGS index.
All of these mechanisms are described in detail in our published Argus Americas Crude methodology.
Access the AGS assessment
This assessment is available in two of our flagship crude oil publications.
ARGUS Americas Crude
The ARGUS Americas Crude service provides market information and price transparency to the US Gulf Coast markets, as well as to markets in the US midcontinent, US west coast, Canada, South America and other pricing centres in the Americas.
The Argus Crude service is a must-have source for daily news, prices and analysis for over 80 different internationally-traded crude streams.