SINGAPORE (Reuters) – The head of world’s largest independent oil trader Vitol said on Monday that the company would prefer U.S. West Texas Intermediate (WTI) Midland crude to be added to the North Sea dated Brent benchmark rather than Norway’s Johan Sverdrup crude.
The Brent benchmark is crucial to the global oil system as it is used to price more than half the world’s physical crude trades. Currently, the benchmark is based on the value of five North Sea crude grades – Forties, Brent, Oseberg, Ekofisk and Troll, but supply of these is in long-term decline.
Oil pricing agency S&P Global Platts said in July that the industry is focused on two possible additions to the benchmark – Johan Sverdrup crude, a high-sulphur or sour grade, and low-sulphur or sweet West Texas Intermediate (WTI) Midland crude.
“We regard WTI as a pretty adequate substitute for many of the crude grades currently in the benchmark,” Vitol’s Chief Executive Officer Russell Hardy said at the Platts APPEC 2021 conference held in Singapore and online.
“Dated and the market for Brent will be better served with expanding it with a sweet alternative rather than a sour alternative,” he said, describing the latter as the “wrong slipper on Cinderella’s foot”.
“We very much prefer a WTI-related solution.”
Adding WTI alone would see the underlying basket of crude supplies for the dated Brent benchmark rising above 1.5 million barrels per day, up from below 1 million bpd currently, a presentation at a Platts crude benchmark workshop on Monday showed. A combination of WTI and Johan Sverdrup would push supplies above 2 million bpd.
However, Joel Hanley, global director of crude and fuel oil at Platts, said both grades present their own challenges.
Johan Sverdrup is denser and has a higher sulphur level than other grades in the basket, so it will require a sulphur de-escalator to be put into the dated Brent benchmark, he said.
While WTI Midland is closer in quality to the North Sea grades, it has a freight component that needs to be considered as it takes 17 days to sail from the U.S. gulf coast to the North Sea, Hanley added.
Also, sellers have to provide a 30-day notice of which port and terminal the cargo will be picked up at, leading to further complications, he said.
“If a perfect grade exists, it would have already gone in,” Hanley said, adding that was why there was strong interest in the two grades despite their individual challenges.
“The market has been progressive in forward thinking in how to incorporate one of those grades, if not both, or neither in some cases.”
Reporting by Chen Aizhu and Florence Tan; Editing by Kirsten Donovan