The deliverable crude oil used as one of the streams in the Dated Brent pricing mechanism will be U.S. grade WTI Midland starting in June. In November 2022, Russian crude exports to the EU decreased to 1.4 million barrels per day, while U.S. crude exports to the region climbed to more than 1.5 million barrels per day.
As the continent struggles to deal with the lack of Russian crude oil as a result of the EU’s embargo on crude imports, the amount of U.S. crude oil being exported to Europe has increased significantly in recent months and is expected to stay high.
G7 country members have also set a price cap on Russian crude oil, further complicating the supply situation for European refiners, leading many of them to seek for new suppliers.
Any decrease in Russian crude oil exports to the area appears to be largely offset by the increase in the volume of U.S. crude oil. A surge of around 70% over 2021 levels, total U.S. crude exports to Europe increased to 1.75 million barrels per day in 2022.
The amount of American crude being sent to Europe appears to ensure that WTI-linked derivatives will continue to be a major player in the world’s crude oil trade.
WTI Midland makes up for North Sea decreases
Interest in the U.S. crude oil market and other related derivatives markets linked to NYMEX WTI crude futures has increased as a result of the introduction of WTI Midland as a deliverable crude oil in the forward Brent contract.
Beginning in June 2023, the U.S. grade WTI Midland will be one of the crude streams used in the Dated Brent pricing mechanism and one of the deliverable crude oils into the Brent forward contract.
Since 2016, there have been various attempts to increase the amount of crude oil available for delivery into the forward cash Brent contract and ultimately support the Dated Brent benchmark since production in the North Sea market has been declining (into which the forward Brent converges).
According to the most recent data from the U.S. Energy Information Administration (EIA) and Bloomberg, the total amount of U.S. crude exported to Europe in October 2022 was about 865,000 barrels per day more than the amount loaded at the existing North Sea crude terminals for the grades that serve as the basis for the Brent contract.
WTI-Linked derivatives are alluring traders
In recent months, trading in WTI-linked futures has surged in anticipation of the addition of WTI Midland. WTI Houston and WTI Midland contracts have been traded as far in advance as December 2026 and December 2025, respectively.
At the end of December 2022, the overall level of open interest throughout the Midland and Houston contracts—a good indicator of a contract’s success—had increased by 60,000 lots from the previous year to 300,000 contracts.
Trading the listed futures markets listed at CME Group is one way that traders are increasingly trying to control any price risk related to the underlying markets. Trading companies, producers, and refiners on both sides of the Atlantic are interested in trading in the WTI and U.S. grades markets.
In 2022, the total volume of WTI Midland crude oil futures compared to the benchmark WTI futures was on average 52,000 lots per month, which was a twofold increase from 2021.
In the same time frame, the monthly traded volume of WTI Houston futures increased from roughly 62,000 lots per month in the previous 12-month period to just under 74,000 lots per month.
Europe Turns to U.S and Saudi Exports
In recent months, the volume of Russian petroleum supplies to Europe has decreased in expectation of the December 2022 enactment of sanctions. Russian crude oil imports had decreased to 1.4 million barrels per day, according to the International Energy Agency (IEA), who reported this in a study from November 2022.
According to U.S. EIA data from October 2022, U.S. crude shipments to the EU reached this amount at 1.55 million barrels per day. The IEA reported in its most recent November 2022 report that 12% of the processing volumes in EU refineries come from U.S. crude.
Source: S&P Global and Kpler
Additionally, European refiners have increased their imports of other crude streams, and some Middle Eastern exporters have been successful in growing their exports to the area.
Saudi Arabia’s exports to Europe climbed considerably in 2022, according to S&P Global Platts. In October 2022, Saudi Arabia’s total exports for the year to date surpassed 500,000 barrels per day for the first time since 2019.
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