All Eyes on WTI Midland Flows as Market Prepares for its Inclusion in the Dated Brent Benchmark

‍Following a series of extensive stakeholder consultations and proposal periods, price reporting agencies S&P Global Commodity Insights (Platts) and Argus announced that WTI Midland will be included as part of their physical North Sea Brent basket price assessments, from June 2023 deliveries onwards. This widely accepted decision comes as a result of the dwindling production from the North Sea and the need to introduce new barrels to maintain the benchmark’s robustness. As a non-European produced crude, however, several considerations regarding its inclusion have been made including the assessed basis of delivery, pre-approved export terminals, and clip sizes - all of which requires a deep understanding of the nature of WTI flows within North West Europe (NWE). With such rapidly evolving developments, providing forward-looking, reliable and comprehensive data is essential in keeping up with WTI Midland and related flows.

_{Background: Development of the Brent Basket}

Over the past two decades, modifications to the Dated Brent complex have enabled a robust benchmark, ensuring an effective price assessment for physical light sweet crude and retaining its role as the world’s leading crude oil benchmark ecosystem. Following a steep decline in production from the UK Continental shelf, and gradual depletion of the Brent field, Ekofisk was added to the complex in 2007, and Troll in 2017. In May 2022, Platts announced their intention to include WTI Midland in the CIF Dated Brent complex; a timely intervention given that production from the five Dated Brent grades is estimated to fall below 600,000 barrels per day within the next couple of years. Other factors leading to WTI’s inclusion are the increased production from the Permian Basin, emergence of the US as a crude exporter, and shifting patterns of crude demand. As the first US-produced crude to be included in Dated Brent, which has traditionally produced only North Sea barrels, WTI Midland's inclusion marks an extraordinary market development.

_{Shifting demand patterns: Increasing WTI and WTI Midland flows in NWE}

WTI’s presence in NWE, however, is not new. Since the US export ban was lifted in December 2015, the grade has become a mainstay within the region's refining sector, with constantly increasing imports between 2016 (13kbd) and 2022 (778 kbd). Moreover, with the EU’s ban of Russian crude imports (about 1,000 KBD), refiners have sought after WTI Midland amongst others to help backfill the loss of light sweet Russian grades. As such, it is expected that the rising trend of WTI Midland flows to Europe will continue for the foreseeable future.

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Note : At Kpler, we identify WTI as crude that  may have come directly from Midland, or could have also gone through Cushing. Midland, on the other hand, is classified as such based on the specific mentioning of Midland or pipeline source in the bill of lading description._‍

_{The importance of knowing exact crude grades and qualities}

The ability to understand crude flows based on quality is an important element in determining refineries' preference whilst spotting any shifting dynamics within any region. According to Argus, their decision to add WTI to their New North Sea Dated crude price assessments was largely influenced by the similarity of its quality with the existing grades in the basket. Similarly, Platts further argues that WTI’s inclusion ensures the light sweet crude standards of Dated Brent are maintained. By the end of 2022, light sweet crude accounted for 48.5% of NWE imports - amongst which 24% (and 11% of total imports) are WTI. In comparison, Johan Sverdrup (medium sour), a Norwegian grade which was highly considered for inclusion into the benchmark, accounted for only 6% of total imports during the same time frame. Although JS’s production is considerably lower, its inclusion in the benchmark would have been more straightforward, logistically, given it is a North Sea-produced grade. WTI’s selection therefore highlights the importance of the quality composition within the Brent basket. To gain a deep understanding of these shifting dynamics and trade flows, Kpler analytics provides a crude quality split by feature, enabling users to determine trade flows split by crude quality.

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_{Tracking WTI Midland exports: timely and reliable data using BOLs}

WTI’s inclusion requires market participants to gain a deep understanding and forward-looking view of WTI flows given the complexities that may come with being a non-European produced crude grade. In terms of operating procedures, several considerations have been made to determine the most practical basis of delivery, pricing and adjustments for freight costs between US Gulf Coast and Rotterdam. For example, WTI will be priced in the same manner as Brent, Forties, Oseberg, Ekofisk and Troll in Dated Brent, on a Cost, Insurance, and Freight (CIF) basis. However, Platts intends on gathering more data to develop a methodology for WTI deliveries on an FOB basis - changes needed to ensure continued connectivity between Dated Brent, Cash BFOE and Brent Futures.

To address these market needs, Kpler adopts a robust methodology for tracking flows, using a combination of reports, AIS signal, algorithm and market insight. For U.S exports, Kpler uses verified bills of lading information, thereby ensuring highly reliable and precise trade data. Furthermore, the acquisition of ClipperData in 2021 has enhanced Kpler’s data with the complete history of US crude oil exports, predating the lifting of the crude export ban. The aggregation of these oil trades happening in real time, grounded on hard data from a variety of sources, allows us to show what is happening in the U.S. crude export market at any given time. This tried and tested approach is the basis of our exports data, which adds more transparency and color than standalone weekly figures derived from an error-prone methodology based on paperwork tracking.

_{Approved export terminals: differentiating WTI Midland from WTI}

Given the landlocked nature of the Permian Basin, WTI is delivered to the Gulf Coast via pipelines and then exported through terminals in Corpus Christi, Houston and Beaumont/Port Arthur in Texas. At Kpler, we identify WTI as crude that  may have come directly from Midland, or could have also gone through Cushing. Midland, on the other hand, is classified as such based on the specific mentioning of Midland or pipeline source in the bill of lading description.

To ensure the robustness of the benchmark,  Platts will assess WTI Midland from only pre-approved terminals i.e. terminals that receive crude directly from the Permian Basin. Platts has so far announced 11 approved terminals (ref. Approved terminals table) to deliver WTI Midland crude into the Brent benchmark complex. To track flows from these terminals, Kpler users can search for WTI Midland exports and split by origin installation. This search enables users to assess a breakdown of WTI Midland flows based on their export terminal. Kpler’s data also allows users to filter these flows in many different ways including splitting by destination terminal, buyer, seller, charterer, etc.

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WTI's inclusion into the Brent complex and the increase in physical volumes into Europe has a huge impact on price dynamics in the global energy market. By providing the highest quality of data and the necessary tools to capture the full picture of this development, Kpler enables users to gain a comprehensive understanding of historical data points, ongoing developments, and potential future flows. Kpler’s industry-leading US exports figures are backed by reliable bills of lading information, with accurate grades and volume data, allowing our users to have full confidence in their business decisions.

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