Iraqi state-owned oil marketing firm Somo will price sales of US-bound crude at differentials to the Argus Sour Crude Index ("ASCI") benchmark from April onwards.
The latest Iraqi official formulas for March loadings of Kirkuk and Basrah Light crudes have been set at differentials to Platts WTI, but the next batch of formulas, to be issued next month, will use the ASCI benchmark price.
"We will use it for April pricing," Somo director-general Falah al-Amiri told Argus. The ASCI benchmark price, which was launched in May last year, has already been adopted by Saudi Arabia and Kuwait as the basis for term crude sales to the US.
Iraq's switch in benchmarking away from WTI means that over 1.6mn b/d of Mideast Gulf crude exports to the US are now set at differentials to the ASCI price. Iraq exported 450,000 b/d to the US last year, with Kuwaiti sales amounting to over 180,000 b/d and Saudi Arabia selling nearly 1mn b/d to refiners in the US.
The daily ASCI price is calculated from a volume-weighted average of deals done for three grades of US Gulf of Mexico medium sour crude combined: Mars, Poseidon and Southern Green Canyon. These are the grades against which exporters of sour crude to the US compete.
"Iraq's decision to switch to the ASCI price benchmark demonstrates the increasing attraction of Argus' transparent and robust method of price discovery in the US crude market," Argus Media chairman and chief executive Adrian Binks said.
Buyers and sellers have expressed dissatisfaction with the use of WTI as a pricing reference for term sales, because it is heavily influenced by conditions at the landlocked Cushing, Oklahoma, hub and can become disconnected from the fundamentals shaping the global crude market.
US medium sour grades such as those that make up the ASCI price continue to use WTI as a price reference crude, but respond quickly to global market dynamics whenever WTI becomes dislocated from world crude prices. By using the ASCI price as a benchmark, sour crude suppliers to the US are able to reflect this market responsiveness to WTI disconnections.
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