The U.S. has been an exporter to the global oil market since 2016, but in 2023, the U.S grade called WTI Midland was formally entered into the pricing arena for global crude with its inclusion into the pricing mechanism for determining the price of Dated Brent. The inclusion of WTI Midland by S&P Global Platts in May 2023 provided additional supply into Brent but it also significantly elevated the role of WTI benchmark pricing on the global stage. Prior to its addition, the Dated Brent benchmark had only included production from the North Sea, but with output falling month on month, the decision to add WTI Midland was taken.
This change has contributed to a significant adjustment to the global crude flows in the oil markets with refiners outside of the U.S. processing higher volumes of U.S. crude grades, in some cases for the first time. These changes typically expose the international market to U.S crude pricing, which can be beneficial to the trade in the NYMEX WTI benchmark.
Furthermore, the change has helped a broader transition going on in the U.S. market with the key non-OPEC producer transforming itself from a major importer to a large exporter to global markets. Asia and European refiners have been some of the most significant beneficiaries where U.S. flows have steadily increased since the U.S. export ban was lifted.
WTI continues to grow its influence on Brent
The influence that WTI Midland is having on the pricing of Dated Brent is becoming clearer a few months after its inclusion in the benchmark. The latest data from S&P Global Platts and CME Group for the period August 2023 to June 2024 shows that WTI Midland set the Dated Brent benchmark price 54% of the time on average.
Chart 1: The role of WTI in Brent pricing
U.S. crude exports to Europe continue to shine
The volume of U.S. oil exports being shipped to Europe continues to far exceed the total volume of Brent crude oil produced from the existing crude fields in the North Sea that underpin the Brent futures benchmark. This was one of the major reasons why WTI Midland was included as one of the delivery grades as it bolsters the total volume of crude that could be delivered under the Brent contract.
The latest volume shows that around 1.8 million barrels per day compared to 650,000 barrels per day for the Brent crude oil grades. This has been an ongoing directional trend since early 2022 and continues to reinforce the pricing role that the U.S. benchmark is playing for European market participants.
Chart 2: U.S. crude exports continue to exceed Brent production
The Vortexa data shows that U.S. crude exports to Europe (all) reached around 2.2 million barrels per day in the 12-months to May 2024, this represents an increase of 23% year over year compared to the same period in 2023.
U.S. trading volumes expand in European hours
The inclusion of WTI into the Brent benchmark has drawn higher customer interest from outside the U.S. into WTI and this appears to be translating into a greater proportion of WTI futures volumes being traded in European hours.
Chart 3: European trading interest in WTI futures expands
CME Group data shows that the percentage of total volume in WTI has been rising since the inclusion of WTI Midland into the Dated Brent price. There was over 35% of the total daily volumes traded outside the U.S. core hours in June 2024, an increase from 25% in January 2023. In volume terms, the June 2024 level equates to around 900,000 lots, an increase of 16% from the same period 12 months earlier. This also coincides with the timing of the formal introduction of WTI as a deliverable grade into the Dated Brent basket of crudes.
Risk exposure to U.S. crude prices from regions outside the U.S. is on the rise as grades like WTI Midland continue to play an outsized role on the global stage. As U.S. export cargoes have flowed in higher volumes, non-U.S. refiners are trading firms that may have traditionally relied on Brent to manage risk are much more focused on what is happening in both the WTI and along the U.S. Gulf coast. CME Group futures markets for Argus-based WTI Midland and the Argus WTI Houston have been big beneficiaries of this change.
Chart 4: It’s all about the Gulf coast
U.S. crude production volumes reach new highs
So, what is behind the surge in U.S. crude production? The shale revolution is a major contributing factor to the higher level of U.S. output but demand from the global market has also helped to propel U.S. output to the highest levels on record. The U.S. Energy Information Administration (EIA) data shows that U.S. crude oil production has reached 13.18 million barrels per day in March 2024, which is just shy of the previous all-time high of 13.295 million barrels per day in November 2023. In the crucial Petroleum Administration District or PADD III in the U.S. Gulf area, total production volumes reached 9.565 million barrels per day, which is a record high level.
Chart 5: U.S. crude production on verge of new output record
Since WTI was formally admitted into the Brent delivery mechanism, trading interest around the U.S. market has surged. This is evident in the increased f volumes of WTI Crude futures being traded outside U.S. hours, as well as rising volumes for all of the WTI-related futures and options markets. This includes key grades on the U.S. Gulf coast like WTI and Midland, which have a strong connection to the U.S. benchmark. Further adoption of WTI from the international market is likely as WTI continues to play a more significant role in global crude pricing.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
