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Analysis-Promise of calmer markets as US oil wrests pricing power from Brent

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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.”


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.


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.


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.


Gold prices steady above $2,000 with nonfarm payrolls in focus

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Gold prices steady above $2,000 with nonfarm payrolls in focus
© Reuters – Gold prices moved little in Asian trade on Friday, sticking above key levels as markets awaited a potentially softer U.S. nonfarm payrolls reading, which comes just days before a Federal Reserve meeting. 

The yellow metal had raced to record highs at the beginning of the week, helped by a mix of rate cut bets and safe haven demand. 

But it had lost the record highs as abruptly as it had reached them, as traders locked in profits amid some uncertainty over U.S. monetary policy.

steadied at $2,030.26 an ounce, while expiring in February were flat at $2,046.05 an ounce by 01:17 ET (06:17 GMT). Both instruments had touched record highs above $2,100 an ounce on Monday, before swiftly reversing most gains.

Still, the yellow metal had now maintained the $2,000 an ounce level for nearly three weeks, indicating increased optimism over gold’s prospects in the coming months.

Nonfarm payrolls in sight, markets seek softer reading 

Focus was now squarely on data for November, due later on Friday.

The reading is expected to show further cooling in the labor market, after a drop in and data signaled some unwinding in the sector.

Any further cooling in the labor market gives the Federal Reserve less impetus to keep interest rates higher for longer-a scenario that benefits gold.

While the central bank is when it meets next week, its outlook on monetary policy, particularly on when it plans to begin trimming rates, remains uncertain. 

Bets that the were a key point of support for gold prices earlier this week. But traders scaled back those bets, given that the Fed has largely maintained its stance that rates will remain higher for longer. 

Still, the yellow metal may be poised for more strength in the coming months, especially if interest rates fall and global economic conditions deteriorate further.

A raft of recent economic readings from the U.S., Asia and the euro zone suggested that growth was set to cool in 2024.

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Factbox-Australia’s Woodside, Santos in talks for $53 billion oil-gas merger

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Factbox-Australia's Woodside, Santos in talks for $53 billion oil-gas merger
© Reuters. FILE PHOTO: FILE PHOTO: View of a model of carbon capture and storage designed by Santos Ltd, at the Australian Petroleum Production and Exploration Association conference in Brisbane, Australia May 18, 2022. REUTERS/Sonali Paul/File Photo/File Photo

(Reuters) – Australia energy companies Woodside (OTC:) and Santos Ltd said late on Thursday that they are in preliminary merger talks, in what could be the latest big deal in a wave of global consolidation the in oil and gas sector.

A potential combination of the companies, which together have a market value of about $52 billion, comes amid challenges faced by both in their domestic projects from Indigenous people as well as rising pressures of decarbonisation.

Both companies have seen their share performance lag global peers.


Woodside in October cut its its 2023 production outlook and missed third-quarter revenue estimates, while it was ordered by the Australian federal court to seek new approval to conduct seismic blasting under the seabed for its $12 billion Scarborough gas project after a legal challenge by an Indigenous woman.

Santos is contending with legal challenges from a traditional land owner from the Tiwi Islands on undersea pipeline works for its $3.6 billion Barossa gas project and has forecast lower output in 2024 as its Bayu-Undan gas field reached the end of its life and its West Australian offshore field’s output declined.

Below are key details on both companies, including production and reserves measured in million barrels of oil equivalent (mmboe):

Woodside Santos

Market cap ($ in billion) 37.39 15.56

Revenue ($ in billion)

16.9 7.8


Production (mmboe) Domestic 136.6 61.3

International 21.1 41.9

Total 157.7 103.2

Proved plus probable reserves (mmboe) 3,640.3 1,745


Production forecasts (mmboe)

183-188 (2023) 84-90 (2024)



Woodside operates major liquefied (LNG) export facilities in Australia, including North West Shelf and Pluto LNG, and three floating production storage and offloading (FPSO) facilities in western Australia. The company also owns a stake in the Chevron-operated Wheatstone LNG project.

The company is involved in oil-gas joint ventures in the Bass strait and partners with Santos at Macedon, a gas field off western Australia. Woodside has been trying to sell ageing domestic oil and gas assets where production is declining and high decomissioning costs are required.

The company received approval for its Scarborough and Pluto Train 2 projects in Australia in 2021, with first LNG cargo expected in 2026.

Globally, Woodside operates in the U.S. Gulf of Mexico with three offshore platforms, as well as an offshore processing facility in Trinidad and Tobago.

In Senegal, Woodside is targeting first oil production at the Sangomar Field Development Phase 1 in 2024. Woodside has also made a final investment decision to develop the large, high-quality Trion resource in Mexico, with first oil output targeted for 2028.

Other Woodside projects include proposed hydrogen and ammonia projects H2Perth and H2TAS in Australia and another hydrogen project, H2OK, in North America.


Santos operates Gladstone LNG and holds a stake in Papua New Guinea LNG.

The company expects production at the Timor-Leste Bayu-Undan field to cease in 2025 and plans to backfill Darwin LNG with supply from the Barossa field.

Santos is the second-biggest producer of domestic gas in Western Australia and has invested in two offshore oil fields, Van Gogh and Pyrenees.

On the Australian east coast, Santos portfolio includes the Cooper and Eromanga Basins as well eastern Queensland production.

In the U.S., Santos is advancing its Pikka Phase 1 project in Alaska, expecting first oil production in 2026.


If the companies merge, they would have a 26% share of Australia’s east coast gas market.

Combined oil and gas production in 2022 for the two totaled slightly over 260 million barrels of oil equivalent (mmboe), and their total proven plus probable reserves are 5.39 billion mmboe, based on data from the companies.

The Australian Competition and Consumer Commission (ACCC) said on Thursday it would consider whether a public merger review into the impact on competition was required if the deal goes ahead.

“Given ACCC’s focus on East Coast gas, we expect a (merged company) may be a forced seller of the Cooper Basin,” Macquarie bank analyst Mark Wiseman said in a note.

($1 = 1.5154 Australian dollars)

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Oil heads for seven week decline for first time in five years

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Oil heads for seven week decline for first time in five years
© Reuters. An aerial view shows an oil factory of Idemitsu Kosan Co. in Ichihara, east of Tokyo, Japan November 12, 2021, in this photo taken by Kyodo. Picture taken on November 12, 2021. Mandatory credit Kyodo/via REUTERS ATTENTION EDITORS – THIS IMAGE WAS PROVIDE

By Paul Carsten

LONDON (Reuters) -Oil benchmarks were on track for a seven-week decline on Friday, their first in half a decade, on worries about a supply surplus and weak Chinese demand, though prices rebounded after Saudi Arabia and Russia lobbied OPEC+ members to join output cuts.

futures were up $1.51, or 2%, at $75.56 a barrel at 1234 GMT, while U.S. West Texas Intermediate crude futures were up $1.42, or 2%, to $70.76 a barrel. Brent had earlier risen by $2.

Both benchmarks slid to their lowest since late June in the previous session, a sign that many traders believe the market is oversupplied. Brent and WTI are also in contango, a market structure in which front-month prices trade at a discount to prices further out.

OPEC+’s “weakening position in providing support coupled with record high US production and sluggish Chinese import figures can only mean one thing: there is an abundance of oil available, which is neatly reflected in the contangoed structure of the two pivotal crude oil benchmarks,” said Tamas Varga of oil broker PVM in a note.

Friday’s gains, meanwhile, are a “correction and nothing else,” Varga said.

Saudi Arabia and Russia, the world’s two biggest oil exporters, on Thursday called for all OPEC+ members to join an agreement on output cuts for the good of the global economy, only days after a fractious meeting of the producers’ club.

The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, agreed to a combined 2.2 million barrels per day (bpd) in output cuts for the first quarter of next year.

“Despite OPEC+ members’ pledges, we see total production from OPEC+ countries dropping by only 350,000 bpd from December 2023 into January 2024,” said Viktor Katona, lead crude analyst at Kpler.

Some members of OPEC+ may not adhere to their commitments due to muddied quota baselines and dependence on hydrocarbon revenues, Katona said.

Brent and WTI crude futures are on track to fall 4.2% and 4.5% for the week, respectively, their biggest losses in five weeks.

Fuelling the market’s downturn, Chinese customs data showed its crude oil imports in November fell 9% from a year earlier as high inventory levels, weak economic indicators and slowing orders from independent refiners weakened demand.

In the United States, output remained near record highs of more than 13 million bpd, U.S. Energy Information Administration data showed on Wednesday. [EIA/S]

The market is also looking for monetary policy cues from the official U.S. monthly job report due later today, which is expected to show November job growth improving and wages increasing moderately. That would cement views that the U.S. Federal Reserve is done raising interest rates this cycle.

In Nigeria, the Dangote oil refinery is set to receive its first cargo of 1 million barrels of crude oil later on Friday, the start of operations that, when fully running at 650,000 barrels a day, would turn the OPEC member into a net exporter of fuels after having been almost totally reliant on imports.

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