Saudis drop WTI oil contract

[FarCenter]

By Javier Blas in London

Published: October 28 2009 20:27 | Last updated: October 28 2009 20:27

Saudi Arabia on Wednesday decided to drop the widely used West Texas Intermediate oil contract as the benchmark for pricing its oil, dealing a serious blow to the New York Mercantile Exchange.

The decision by the world’s biggest oil exporter could encourage other producers to abandon the benchmark and threatens the dominance of the world’s most heavily traded oil futures contract. It is the main contract traded on Nymex.

The move reveals the growing discontent of Riyadh and its US refinery customers with WTI after the price of the price of the benchmark became separatedfrom the global oil market this year.

The surge in oil inventories in Cushing, Oklahoma, where WTI is delivered into America’s pipeline system, depressed the value of the WTI against other global benchmarks, throwing the global oil market into disarray.

In January, WTI, which usually trades at a premium of $1-$2 a barrel to Brent, fell sharply, leaving it at a discount of almost $12 – a record gap. This dislocation in the market continued well into the summer.

From January, Saudi Arabia will base the price of oil for its US customers on a new index developed by Argus, the London-based oil pricing company.

The Argus Sour Crude Index will track the price in the physical market of a basket of US Gulf Coast crudes, including Mars, Poseidon and Southern Green Canyon.

<SNIP>http://www.ft.com/cms/s/0/8cda145a-c3fe-11de-8de6-00144feab49a.html?nclick_check=1

[Arctic Dave]

1. Looks the Saudis are pissed about the speculators F'in up the market.

Extreme boom and bust is destructive to everybody, especially the consumer.

[FarCenter]

2. I'm surprised that the Saudis don't just set the price themselves

Perhaps quarterly on long-term contracts.

[Arctic Dave]

3. In a way they do, along with OPEC by production quotas.

What happened last year really screwed up long time pricing models. They were great while they lasted but really threw everything out of whack.

http://www.fwbusinesspress.com/display.php?id=11234

Even the oilfield services are getting screwed by the bubble.

[TransitJohn]

4. Oilfield services...

Tell me about it! I'm finishing up my 12th week of work for this year! And after I go home around Thanksgiving, we don't have any more contracts until next February.

[Arctic Dave]

5. We have cut back quite a bit up here compared to the last couple of years.

This winters exploritory season is pretty much nil. It looks like it will be like the nineties again with demand in the basement. It is what is. Be safe.