Oil: America's new benchmark. Link here. Previously reported but now a bit of the back story and Harold Hamm is center stage. Thank you to a reader. Great story!
American shale oil has a new benchmark, and a driving force behind it is one of the Bakken’s own.
The new benchmark is called American GulfCoast Select (AGS) and Continental’s Harold Hamm is among its architects.
The new benchmark was designed to rival the landlocked U.S. West Texas Intermediate futures contract, which is based on delivery to Cushing, Oklahoma, and which has typically been used to reflect the value of a barrel of Bakken crude oil.
The delivery location for WTI, however, is 500 miles from water, and that has led to market distortions in the past. Most notably, it led to negative $38-dollar futures contracts last year during the pandemic.
Brent, meanwhile, is priced on an island in the North Sea, with immediate access to tanker storage. That insulates Brent from market distortion like that caused by the supply glut caused by the Saudi-Russian price war during the pandemic.
The new benchmark is based on Gulf Coast delivery instead of a land-locked location, essentially giving shale a Brent of its own. That will better reflect shale oil’s value in the world market, and should prevent market distortions due to lack of storage infrastructure.
Hamm, in a recent editorial circulated by the Montana Petroleum Association, said the negative future contracts for WTI were a wake-up that the situation at Cushing, Oklahoma, through which a lot of Bakken crude oil still travels, was no longer tenable.
Platts AGS reflects the value of light sweet crude oil loading 15-45 days forward on an FOB basis from locations along the US Gulf Coast including Houston, Corpus Christi, Beaumont, Nederland, Texas City, and Port Arthur, with the most competitive location on a cargo-size normalized basis setting the price assessment.
This crude oil assessment reflects a typical cargo size of 700,000 barrels, with bids, offers and trades between 550,000 and 800,000 barrels eligible for use in the assessment but normalized to reflect the freight economics of the typical cargo size. The assessment reflects the Platts WTI Midland grade supplied directly from the Permian Basin on the BridgeTex, Longhorn, Midland-to-Echo I/II, Cactus I/II, EPIC, Gray Oak, and Permian Express pipelines with API between 40 and 44 and .2% sulfur limit, among other specifications.
And here, if I'm reading the story correctly, AGS runs about $1.00 to $2.00 over Brent.
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