Kuwait could follow Saudi Arabia’s lead by abandoning the long-established West Texas Intermediate (WTI) benchmark it uses to price the oil it sells in the US.
State energy firm Kuwait Petroleum Corporation (KPC), is looking to switch to a less volatile benchmark than WTI to make its oil revenues more predictable.
One source close to KPC says the company met officials from the Argus oil pricing group in the fourth week of November.
“KPC officials met with Argus just last month to find out about the way they are pricing crude,” says the source. “KPC is still evaluating the two pricing benchmarks, but there is certainly a strong logic to following Aramco.”
The source adds that KPC is likely to decide whether to ditch the WTI benchmark before the end of December.
Saudi Arabia’s national oil company, Saudi Aramco, surprised global oil markets on 28 October when it replaced WTI with a new benchmark: the Argus Sour Crude Index (see feature, page 24).
Aramco decided to drop the WTI because its US customers had complained that prices were becoming increasingly volatile compared with the Brent oil price quoted in Europe. Historically, the difference in prices between WTI and Brent crude has kept within a close range of $1-2, but in January this year, the price of WTI fell sharply, leaving a record $12-a-barrel gap between the two main global benchmarks. In February, WTI crude was trading at a $6-a-barrel premium.
The sulphur-heavy oil Saudi Arabia and Kuwait sell to the US is closer in type to the oil produced in the Gulf of Mexico, which is used to calculate the Argus benchmark. It is more expensive to refine than the light, sweet oil used to calculate WTI prices, and its pricing has to be adjusted to reflect the higher processing costs.
Kuwait exported 210,000 barrels a day (b/d) of oil to the US in 2008, according to the US’ Energy Information Administration. Saudi Arabia shipped 1.5 million b/d to the US in 2008.