Commodities
Analysis-Promise of calmer markets as US oil wrests pricing power from Brent
© Reuters. FILE PHOTO: Crude oil storage tanks are seen from above at the Cushing oil hub, appearing to run out of space to contain a historic supply glut that has hammered prices, in Cushing, Oklahoma, March 24, 2016. REUTERS/Nick Oxford//File Photo
By Alex Lawler
LONDON (Reuters) – Increased exports of oil from the United States into Europe and Asia mean has snatched back its primacy in setting international pricing after North Sea (NYSE:) grades have for decades determined the value of the world’s most traded commodity.
The trend has calmed volatility and limits the potential for trading plays, known by traders as squeezes, that have on occasions distorted the established Brent oil benchmark, based on North Sea crudes, traders and industry insiders said.
A lack of volatility and of price distortion would be positive for consumers, stung by months of high inflation driven by energy prices. Some analysts also say the change has shifted power to U.S. companies and traders in the U.S. market.
Historically, U.S. West Texas Intermediate crude futures were the first widely accessible crude contracts launched on financial markets in 1983 until the Brent futures contract, launched in 1988, eventually gained prominence.
Its rise has been checked by declining volumes from ageing North Sea fields, while U.S. production has continued to rise as a result of the shale revolution that meant oil previously too difficult to extract could be released.
As a result, oil-index publisher S&P Global Commodity Insights, widely known as Platts, added the U.S. crude grade WTI Midland to the dated Brent benchmark from June deliveries and it often plays a role in setting its value.
“The introduction of WTI Midland into the North Sea basket has fast-tracked Midland from being a domestic crude…and rendered the U.S. grade the most important in the world, well currently anyway,” John Evans of oil broker PVM said.
Dated Brent is a part of the wider Brent complex that includes physical cargoes, swaps and the Intercontinental Exchange (NYSE:) Brent futures contract. Brent is used to price over three-quarters of the world’s traded oil.
Adi Imsirovic, director at consultant Surrey Clean Energy and a veteran oil trader who has written extensively on Brent, said the amalgamation of the two international benchmarks was positive.
“Brent is working just fine,” he said. “You’ve got the two major benchmarks in the world working in synch.”
CHANGED DYNAMICS
The extra supply underpinning the benchmark has reduced volatility in the spreads between monthly futures contracts, which previously have been distorted as traders sought profits, especially when a monthly contract expired.
Oil traders, speaking on condition of anonymity because they are not authorised to speak to the press, say the much larger WTI volumes available prevent price manipulation.
A senior executive at a major oil trader said the dynamic of Brent trading had changed “dramatically”.
Data from Kpler said the volume of WTI Midland flowing to Europe reached about 1.34 million barrels per day in July, before easing in August, far more than the typical output of the five North Sea crudes used in the benchmark.
The price of dated Brent is set by the cheapest of the six crudes. An S&P Global chart provided to Reuters shows Midland having a leading role in setting the value.
At the same time, volatility in the spread between the first- and second-month Brent crude futures contracts has decreased.
Previously, many of the companies that trade the crude, from trading houses such as Glencore (OTC:) and Vitol to refiners such as Shell (LON:), regularly built big positions that could lead to unusual patterns in related physical and derivative markets.
Although the practice did not breach any regulations, disputes have arisen, including a lawsuit, settled out of court, in which oil refiner Tosco alleged trading company Arcadia had gained a monopoly position in 2000.
Asked to comment on whether the potential for trading plays had decreased, Platts said one aim of adding more oil to any benchmark was to prevent “anomalous” price rises.
“We feel that Midland’s inclusion has been able to do that,” Joel Hanley, global director, crude and fuel oil, at S&P Global Commodity Insights, said.
POWER SHIFT?
Adding WTI to Brent has also redistributed market power, some analysts say.
Companies have firewalls in place to prevent oil traders receiving price-sensitive information.
However, traders have said that when Brent was based just on North Sea crude, companies that owned stakes in producing North Sea fields or in infrastructure, were better placed to have insight into developments that could move the market, such as outages or refinery maintenance.
“Now, the marginal powerful player is a U.S. supplier who has the knowledge of production/scheduling and shipping/port issues,” said Jorge Montepeque, who during decades working at Platts developed dated Brent.
“The power shifted and this is clearly seen when American companies who were not trading the North Sea in size suddenly rushed in.”
U.S. players, such as Occidential and Phillips 66 (NYSE:) have begun offering or bidding for WTI Midland cargoes that could set the dated Brent price, trade sources said.
Other U.S. oil companies ConocoPhillips (NYSE:) and Chevron (NYSE:) might become involved, two industry sources said. Conoco and Chevron declined to comment.
Platts said it has not seen a significant rise in U.S. companies entering the market.
LESS TRANSPARENT?
Every month, producers issue a list of the North Sea cargoes for export. There is no Midland programme because, traders say, no single company – or operator – is in charge, and several terminals supply cargoes.
Some traders say this has made the market less transparent. “We will get our cargo loading dates, but we won’t see all the loading dates at the terminal,” said a trading source.
An industry source said efforts were being made to address this by creating a loading programme for WTI.
Hanley of Platts, which told Reuters in April it did not see any problems around the lack of a programme, said adding WTI Midland into the Brent complex had already added transparency.
Imsirovic, the veteran trader, said historically some market players had always held advantages over others, but he predicted the benefits of the change would become more apparent.
“We have new players in the Brent market which is surely a good thing and we’ve widened the base of people involved,” he said. “That’s going to get even wider I think, over time.”
Thomson Reuters (NYSE:) competes with Platts in providing news and data about the oil market.
By Anna Hirtenstein
LONDON (Reuters) -Oil prices surged on Friday and were on track for a third straight week of gains as traders focused on potential supply disruptions from more sanctions on Russia and Iran.
futures gained $2.66, or 3.5%, to $79.58 a barrel by 1154 GMT, reaching their highest in more than three months. U.S. West Texas Intermediate crude futures advanced $2.64, or 3.6%, to $76.56.
Over the three weeks to Jan. 10, Brent has climbed 9% while WTI has jumped 10%.
“There are several drivers today. Longer term, the market is focused on the prospect for additional sanctions,” said Ole Hansen, head of commodity strategy at Saxo Bank. “Short term, the weather is very cold across the U.S., driving up demand for fuels.”
Ahead of U.S. President-elect Donald Trump’s inauguration on Jan. 20, expectations are mounting over potential supply disruptions from tighter sanctions against Iran and Russia while oil stockpiles remain low.
This could materialise even earlier, with U.S. President Joe Biden expected to announce new sanctions targeting Russia’s economy before Trump takes office. A key target of sanctions so far has been Russia’s oil and shipping industry.
“That would be the farewell gift of the Biden administration,” said PVM analyst Tamas Varga. Existing and possible further sanctions, as well as market expectations of draws on fuel inventories because of the cold weather, are driving prices higher, he added.
The U.S. weather bureau expects central and eastern parts of the country to experience below-average temperatures. Many regions in Europe have also been hit by extreme cold and are likely to continue to experience a colder than usual start to the year, which JPMorgan analysts expect to boost demand.
“We anticipate a significant year-over-year increase in global oil demand of 1.6 million barrels a day in the first quarter of 2025, primarily boosted by … demand for , kerosene and LPG,” they said in a note on Friday.
Meanwhile, the premium on the front-month Brent contract over the six-month contract reached its widest since August this week, potentially indicating supply tightness at a time of rising demand.
Inflation worries are also delivering a boost to prices, said Saxo Bank’s Hansen. Investors are growing concerned about Trump’s planned tariffs, which could drive inflation higher. A popular trade to hedge against rising consumer prices is through buying oil futures.
Oil prices have rallied despite the U.S. dollar strengthening for six straight weeks, making crude oil more expensive outside the United States.
By Karen Braun
NAPERVILLE, Illinois (Reuters) -If anything can derail a price rally, it is a curveball from the U.S. Department of Agriculture.
Chicago corn futures have ticked slightly lower to start the year, but they had climbed nearly 12% in the final two months of 2024, an unusually strong late-year run.
Speculators now hold their most bullish corn view in two years, and luckily for them, the trade has already accepted that last year’s U.S. corn yield was a whopper.
Friday will feature USDA’s biggest data release of the year, with primary focus on the most recent U.S. corn and soybean harvests. U.S. quarterly stocks, U.S. winter wheat seedings and routine global supply and demand updates will also compete for attention.
U.S. CORN AND BEANS
On average, analysts peg U.S. corn yield at 182.7 bushels per acre, down from 183.1 in November. The trade estimate is more than 5 bushels above last year’s record and above USDA’s initial trendline yield for the first time in six years.
Bearish yield outcomes are less likely when the estimates are already large, and only four of 19 polled analysts see corn yield rising from November. However, the range of trade estimates (2.4 bpa) is smaller than usual, flagging the potential for surprise.
In the last decade, analysts anticipated the wrong direction of U.S. corn yield in January only once (2019). They did so three times for soybean yield (2016, 2019, 2022).
But bets are somewhat off for U.S. soybean yield outcomes because USDA’s slashing of the forecast in November was the month’s largest cut in 31 years. Trade estimates indicate some uncertainty around U.S. soybean production as the ranges for both yield and harvested area are historically wide.
Regardless, U.S. soybean supplies are expected to remain ample and at multi-year highs. However, USDA last month pegged 2024-25 U.S. corn ending stocks below the prior year’s level for the first time.
If USDA cuts U.S. corn ending stocks on Friday as expected, it would be the agency’s seventh consecutive monthly reduction. Such a streak has not been observed in at least two decades, reflective of the strong demand that has recently lifted corn prices.
From a market reaction standpoint, these demand dynamics could be somewhat insulating if the U.S. corn crop comes in larger than expected. The last two times CBOT corn had a distinctly negative reaction on January report day were 2012 and 2024, the latter sparked by a huge yield above all trade estimates.
U.S. WHEAT
USDA will not officially issue 2025-26 outlooks until May, but the wheat market will receive its first piece of 2025-26 U.S. crop intel on Friday with the winter wheat planting survey. Total (EPA:) U.S. winter wheat acres are pegged at 33.37 million, very close to both last year and the five-year average.
Analysts have had a rough time anticipating the planting survey in the last two years, coming in almost 1.4 million acres too high last year but lowballing by nearly 2.5 million acres in 2023.
Wheat traders have struggled to find viable bullish narratives despite wheat stocks among major exporters seen dropping to 17-year lows, so another big miss in the U.S. wheat acreage could either support or undermine the recent sentiment.
SOUTH AMERICA
The U.S. crops will probably dominate the headlines on Friday, but it is not too early to watch out for forecast changes in South America. Analysts see USDA upping Brazil’s 2024-25 soybean harvest to a record 170.28 million metric tons from the previous 169 million.
USDA has increased Brazil’s soy crop in three of the last eight Januarys, both on area and yield improvements, and many industry participants have already been factoring in a number north of 170 million tons.
For Argentina, there are already fears that ongoing dry weather could eventually warrant more significant cuts to soybean and corn crops than are anticipated for Friday. American and European weather model runs on Thursday remained stingy with the rainfall over the next two weeks.
USDA already hiked Argentina’s soybean output last month on higher area. The agency increased the crop last January but reduced it in the prior three Januarys. Current crop conditions are slightly worse than a year ago but better than in the prior three years.
Karen Braun is a market analyst for Reuters. Views expressed above are her own.
Investing.com– Oil prices steadied Thursday as traders digested data showing an unexpected increase in US product inventories, while weak economic data from top importer China weighed.
At 05:25 ET (10:25 GMT), expiring in March gained 0.1% to $76.25 a barrel, while rose 0.1% to $73.37 a barrel.
The crude benchmarks had slumped more than 1% on Wednesday, but trading ranges, and volumes, are likely to be limited throughout Thursday with the US market closed to honor former President Jimmy Carter, ahead of a state funeral later in the session.
China inflation muted in December
Chinese inflation, as measured by the , remained unchanged in December, while the shrank for a 27th consecutive month, data showed on Thursday.
The reading pointed to limited improvement in China’s prolonged disinflationary trend, even as the government doled out its most aggressive round of stimulus measures yet through late-2024.
China is the world’s biggest oil importer, and has been a key source of anxiety for crude markets. Traders fear that weak economic growth in the country will eat into oil demand.
The country is also facing potential economic headwinds from the incoming Donald Trump administration in the US, as Trump has vowed to impose steep trade tariffs on Beijing.
US oil product inventories rise sharply
U.S. gasoline and distillate inventories grew substantially more than expected in the week to January 3, government data showed on Wednesday.
inventories grew 6.3 million barrels against expectations of 0.5 mb, while grew 6.1 mb on expectations of 0.5 mb.
Overall crude also shrank less than expected, at 0.96 mb, against expectations of 1.8 mb.
The build in product inventories marked an eighth straight week of outsized product builds, and spurred concerns that demand in the world’s biggest fuel consumer was cooling.
While cold weather in the country spurred some demand for heating, it also disrupted holiday travel in several areas.
EIA data also showed that US imports from Canada rose last week to the highest on record, ahead of incoming U.S. president Donald Trump’s plans to levy a 25% tariff on Canadian imports.
Canada has been the top source of U.S. oil imports for many years, and supplied more than half of the total U.S. crude imports in 2023.
Strength in the also weighed on crude prices, as the greenback shot back up to more than two-year highs on hawkish signals from the Federal Reserve.
A strong dollar pressures oil demand by making crude more expensive for international buyers.
(Ambar Warrick contributed to this article.)
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