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Finding favour in oil benchmark battle

Finding favour in oil benchmark battle

Malaysia's Petronas, Delta Air Lines adopt Brent for hedging; ICE Brent volumes cut NYMEX WTI advantage in past few weeks; Goldman Sachs says switch to Brent is "smart" for investors

April 11, 2011 12:39 by

In the past 20 days, daily turnover in NYMEX crude futures exceeded that of ICE Brent futures by about 165,000 lots, the lowest figure since 2006. On Tuesday, ICE Brent traded more than NYMEX for only the ninth time since 2004, according to Reuters data from the exchanges.

If more Asian producers opt to swap the region’s current benchmarks — mostly viewed as dysfunctional — for Brent, the balance in the war for benchmark supremacy could swing more in ICE’s favour. “It seems to be part of a trend,” said Mike Wittner, Americas head of commodities research at Societe Generale.

“More and more physical oil market participants, whether they are producers, consumers or refiners, are looking at Brent as perhaps more appropriate to manage their risk.”

Two-tiered market

It is too early to say whether volumes have been permanently sapped from WTI. In January and February, as global traders hit the panic button over unrest and war in Libya, WTI had some of its best days ever, several times exceeding Brent volume by more than 500,000 lots. But that changed dramatically as the quarter wound down.

“We have seen Brent volumes surge in the past and even exceed WTI from time to time, only to slip back again,” said Olivier Jakob, managing director of consultants Petromatrix in Zug, Switzerland.

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