Oil pricing benchmark dated Brent to include US' WTI Midland crude in its assessments

Last week was a watershed moment for refinery planners and oil traders as the key global price benchmark Brent, expanded to include US' WTI Midland crude cargoes. More than 50% of the global crude is priced against Brent, however, production of all its constituent North Sea grades (BFOE) have gradually been declining over the years. At such a time, inclusion of WTI significantly adds to the liquidity of the pool that is much needed to retain confidence in a pricing benchmark. WTI Midland crude, unlike Brent, has had logistics constraints in exporting and limited storage capacity (75 mbbl vis-à-vis about 5 bn bbl for storing crudes pricing against Brent, IEA estimates 2020) and has thus been prone to much more volatile front-month time spreads. Even though Platts assessments of Brent shall include WTI exported only from select export terminals and cargo size limited to Aframax (700 kbbl), its inclusion in Brent provides for a mechanism for linking of its pricing with Brent. For refiners, whose crude optimization decision often have to focus on procuring crude oils priced off against Brent vis-à-vis procuring from US (WTI), inclusion of WTI in Brent assessments should address, at least to some extent, a key element of risk in the realization of their gross refining margin.