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Saudi Aramco Switching To Argus Sour Crude For January US Deliveries

Saudi Aramco will, as of January 2010, begin using the Argus Sour Crude Index (ASCI) published by Argus Media as the current benchmark for all grades of crude oil sold to US customers. Saudi Aramco has used WTI crude prices published by McGraw Hill’s Platts as the benchmark for crude sales to the US since 1994. A statement published by Argus Media on 28 October said: “This fundamental change in policy reflects the increased importance of the US Gulf coast sour crude market, in which both production and trading activity is rising sharply,” noting that Saudi exports to the US averaged more than 1.5mn b/d in 2008. The ASCI was launched in May 2009 to represent the daily value of US Gulf coast medium sour crude, based on physical spot market transactions. The daily ASCI price is the volume-weighted average of all deals done for three grades of crude combined: Mars, Poseidon and Southern Green Canyon. Saudi Aramco will publish a monthly price differential to a month’s average of the daily ASCI price published by Argus , the Argus Media statement said.

Commenting on Saudi Aramco’s switch to ASCI, Paul Horsnell, Head of Commodities Research at Barclays Capital, said in the 28 October issue of Weekly Oil Data Review that he views the “change in the Saudi formula to the US as providing insurance for term contract holders during US mid-continent price dislocations without removing WTI’s primary price discovery role at other times.” Dr Horsnell said Barclays “would see this change as being more of an evolutionary smoothing out of distortions, rather than representing a dramatic change in the dynamics of the US crude market… It seems safe to see the change in reflecting a wide discontent within the US oil industry about the performance of WTI during those periods of dislocation.” WTI, a light sweet crude, has been seen as increasingly unrepresentative of the US sour complex.

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