London, 2 November 2009 

Saudi Aramco's decision to switch pricing for its crude sales to U.S. customers from a light sweet crude oil benchmark to a trade-weighted basket of medium sour crudes produced in the U.S. Gulf (Mars, Poseidon and Southern Green Canyon) has focused attention on grade and location differentials in the U.S. crude market. 

The attached chart shows pricing differentials for two of the medium sour grades in the Argus Sour Crude Index (ASCI) compared with cash prices for West Texas Intermediate (WTI) at Cushing, Oklahoma (the delivery point for the NYMEX light sweet oil futures contract) and Midland, Texas:

http://graphics.thomsonreuters.com/ce-insight/CRUDE-DIFFERENTIALS.pdf

Increasingly large and unstable differentials between landlocked light weet crude trading at Cushing and the sour crude market on the U.S. Gulf Coast have undermined WTI's usefulness as a reference for seaborne exports to the U.S. crude market, encouraging Aramco to switch.

NYMEX has already responded, announcing it will introduce a cash-settled futures contract tracking the ASCI by the end of the year, with a physically settled contract to be introduced "in the near future". The delivery point for the physical contract will be in the U.S. Gulf Coast region, and will use Mars and Poseidon as benchmarks.

Ends –

By John Kemp, Reuters columnist. The views expressed are his own