Argus Live: Ice, CME positive about WTI crude in Dated

Exchange operators Ice and CME see the potential addition of US crude WTI to the basket of grades which underpin the Atlantic crude benchmark as a positive move.

Flows of WTI to the European continent have been steady since the shale boom and remained stable over 2019-2020 despite the spread of Covid-19, Ice head of oil market research Mike Wittner told the Argus Crude Live virtual conference today.

US crude exports to Europe currently average around 1mn b/d, according to Wittner. He said that WTI exports levels go hand-in-hand with production and are somewhat immune to rises in domestic demand because US refiners would typically seek to import more sour crudes if runs were to increase.

US exchange operator CME managing director of research and product development Owain Johnson said that WTI shipments to Asia-Pacific have been rising since the US crude export ban was lifted in 2015, which has increased the grade's trade volumes and gave way to increased opportunities for spread trading.

Ice's Wittner explained that waterborne cargoes of WTI going to Europe were immediately priced against Dated Brent — Platt's equivalent to Argus' North Sea Dated. This serves to eliminate any restrictions or issues caused by the WTI market in the US. Cargoes exported to Asia-Pacific are priced against the Dubai benchmark, which is also linked to the Atlantic basin benchmark making the Dated price an integrated global market, he said.

But Wittner said hedging methods for WTI still need to be streamlined, which prompted the wider discussion of including WTI into the Atlantic Benchmark mix. ''The Dated Brent price has evolved over time, and although many details need to be ironed out, the discussion of adding another grade to the mix is one worth having,'' Wittner said.

CME's Johnson said it was exciting ''to see WTI going into the Brent market". "It deepens the spread, deepens the exposure that the European market has to WTI. It is good for liquidity all around, good for Brent and good for WTI''.

But the impact of adding WTI to the Dated basket on the crude futures market remains unknown. The Brent futures market has been tightly linked to its underlying physical counterpart. Ice's Mike Wittner agreed that changes to the futures contracts would be possible, but said more clarity is needed from a physical contract standpoint.

The global crude market appeared to have shifted, and both Wittner and Johnson agreed that out of the three major trade regions, Europe was the least advantaged. Demand in the continent has been declining and its profitability slightly eroded, as refiners in Europe struggled to extract high margins as a result of older and much simpler infrastructure, compared with Asia-Pacific, Wittner said.

The spotlight appeared to have moved east to the Mideast Gulf and Asia-Pacific, two markets that CME's Owain Johnson described as ''fast evolving''. New benchmarks and new spreads are emerging in these regions, which he said was good news for liquidity and enhanced transparency. ''The more new oil contracts in the world, the better because there will be more spreads and it will bring new participants'', Johnson said.

Ice said that it is rolling out a new Murban contract in partnership with Adnoc at the end of March. CME's Owain Johnson emphasised that new benchmarks or new spreads were not to be seen as competitive, but rather as supplements.

Although Johnson and Wittner agreed that adding US crude to the Brent complex was a step in the right direction, discussions are still far from concluded, they said. Both said the emergence of more sour crude grades such as Johan Sverdrup should be considered. They agreed that Johan Sverdrup should be made part of the discussion as it provides an opportunity to take advantage of local liquidity before seeking options outside of the region.

By Riyan Zerrouki