Rising U.S. crude oil exports are upending global oil trade and oil flows to various regions in the world, snatching up market share in Asia and Europe from the traditional suppliers such as OPEC, Russia, and West Africa.
At the same time, oil flows from the biggest fields in the North Sea that are used by S&P Global Platts to determine the Brent benchmark assessment are set for a structural decline as those fields mature.
S&P Global Platts has been looking for years to make the Brent assessment and the many contracts that underpin it relevant to the market in the North Sea—in contracts reflecting both where oil is loaded and where it is delivered.
In one of the newest assessments for crude oil delivery to the North Sea market—the Dated Brent Cost-Insurance-Freight (CIF) Rotterdam assessment—S&P Global Platts may one day consider including U.S. oil delivered to one of Europe’s largest oil hubs, Rotterdam in the Netherlands.
“These should be grades currently being delivered into the region, which could start with current North Sea grades and be expanded into others, could include grades from West and North Africa, the Mediterranean, as well as the U.S.,” Joel Hanley, senior director for European oil pricing at S&P Global Platts, told Bloomberg last week.
Consideration and addition of another price assessment to the many North Sea oil price assessments takes years. But talk of U.S. oil deliveries possibly being considered for inclusion—less than three years after the U.S. lifted its restrictions on crude oil exports—highlights the growing importance of U.S. exports on the global oil markets.
At the core of the Brent crude complex is Dated Brent, which includes not only the namesake crude—it currently comprises five crudes loading in the North Sea on any given day—Brent Ninian Blend, Forties, Oseberg, Ekofisk, and Troll. The latest additionto this Dated Brent assessment – Troll -was added in January this year in a bid to ensure that there will be sufficient deliverable North Sea crude reflected in the price assessments.
But apart from Dated Brent, the Brent crude complex includes many other assessments and contracts. One of the newest such contracts from March 2016 is Dated Brent Cost-Insurance-Freight (CIF) Rotterdam—a price assessment of North Sea light sweet crude on a delivered basis into Rotterdam.
With U.S. exports rising and global oil flows shifting, one day it might make sense for U.S. oil to be included in the Rotterdam delivered-oil assessment.
American exports are on the rise, recently setting a new weekly record—3 million bpdin the third week of June. Europe, the Netherlands, and the UK in particular, are some of the largest destinations of U.S. crude oil exports, behind Canada and China.
According to an S&P Global Platts report from February 2018, in 2016 and 2017 the U.S. quietly become a major source of light sweet crude to Europe, supplementing the absence of North Sea barrels shipping to Asia.
In the second half of 2017, thanks to the wide discount of WTI relative to Brent, U.S. crude shipping from the Gulf Coast to refineries in Europe jumped sharply.
According to Platts trade flow software cFlow, U.S. crude imports accounted for just over 4 percent of the total crude refined in Northwest Europe as of February 2018. However, that market share is expected to rise as U.S. Gulf Coast export infrastructure continues to grow over the next few years, Platts said.
“Additionally, while most of the crude coming out of the US Gulf Coast is currently light and sweet, improved pipeline capacity in the US is likely to bring additional heavier, sourer volumes out via the Gulf, which could begin to compete more actively with traditional sources of sour crude like Russia’s Urals,” according to S&P Global Platts.
It will take years for various price assessments for the Brent benchmark to include oil delivered to the North Sea hubs from elsewhere, but if U.S. exports to those hubs continue to increase, one day U.S. oil might help determine one of the many contracts underpinning the Brent benchmark.