Two new oil price benchmarks were introduced on Friday to better reflect oil pricing on the US Gulf Coast as an alternative to the existing US oil pricing benchmark West Texas Intermediate (WTI).
S&P Global Platts, the provider of information and benchmark prices for commodities and energy markets, said in a statement it had launched a new benchmark for US crude oil named Platts American GulfCoast Select (AGS) on Friday.
The new price benchmark, an alternative to WTI, will reflect the value of "waterborne light, sweet crude loading US Gulf Coast, 15 to 45 days ahead," the statement said.
While WTI is priced based on supply and demand at the heart of the US oil pipeline network at Cushing, Oklahoma, Platts AGS aims to reflect the price of light, sweet crude traded in the US Gulf Coast, supplied directly via specific pipelines from the Permian Basin.
Vera Blei, global director of oil at S&P Global Platts, said that Cushing has failed for several years to represent the economics of crude oil in the Gulf Coast market.
“Market participants have called for a benchmark that correctly reflects the core of the physical market in the Gulf Coast, rather than a landlocked financial value," Blei said in a statement.
"Platts AGS, at last, brings the US market a Brent of its own. This new benchmark reflects the value of US crude oil that is on the water, internationally connected and free from the distortions of domestic infrastructure economics," she added.
Although the pricing of Brent crude in the form of WTI is taken as an international benchmark, WTI has been problematic for American oil pricing recently. Crude trade via sea and through the increased number of pipelines to the Gulf Coast has ramped up to the extent that over 3 million barrels per day are shipped to overseas markets.
Blei contends that WTI in Cushing, which is some 500 miles (800 kilometers) away from the shore of the US state of Texas on the Gulf Coast, has failed to grasp the true supply and demand balance for pricing recently.
WTI plummeting into negative territory in April has also caused problems for the oil market. WTI hit as low as minus $40 per barrel, after oil producers failed to quickly sell their crude stocks in storage amid weak global oil demand due to the novel coronavirus.
"Ever since US crude futures collapsed on April 20 to negative $40 per barrel, the US crude oil market has been crying out for an alternative to the discredited logistics of Cushing, Oklahoma," Richard Swann, an editorial director of Americas at S&P Global Platts, said in a statement.
Another US oil pricing benchmark, Light Louisiana Sweet (LLS), has become popular in recent years as a secondary benchmark to WTI since it better reflects crude trade in the US Gulf Coast.
Apart from Platts, news outlets on Friday also reported that Argus Media would launch its own crude oil benchmark for the US Gulf Coast.
By Ovunc Kutlu