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 Reuters

“Recently, one of the smartest ideas to enhance index return was to switch WTI for Brent,” Goldman Sachs managing director for fixed income, currency and commodities Arun Assumall told Reuters in Singapore. “Many investors would prefer to be exposed to a more global oil price, such as Brent.”

The Asian Game

Malaysia’s move to Brent may prompt other Asian producers to follow, including Vietnam and Indonesia, entrenching Brent’s influence in the region and dampening efforts by the DME to draw Middle Eastern producers towards its Oman futures and away from Platts’ Dubai/Oman assessments.

Still, Malaysia’s crude is light and sweet, while much of the exports from the Middle East which the DME is eying are heavier and more sour. That may mean there is enough space for different markers to gain ground for the different grades.

Brent is gaining favour as a benchmark for sweet crude in Southeast Asia, but how attractive it would be to price sour Middle East grades is another matter, said John Vautrain, director at Purvin & Gertz energy consultants in Singapore.

Malaysia’s move to Brent “illustrates the need and importance of reviewing pricing mechanisms used in East of Suez markets,” the DME said in response to e-mailed questions.

“The current Dubai price assessment used for the majority of Middle Eastern crude exports into Asia suffers from a number of similar problems as Tapis as a benchmark,” the DME said. The Dubai-based exchange said its Oman contract was the “most appropriate” marker.

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