By a News Reporter-Staff News Editor at China Weekly News -- Arguably the world's most valuable commodity, crude oil is essential to modern life, the building block for everything from gasoline to guitar strings. Like other commodities, crude is governed by the theory of supply and demand. Producers produce, buyers buy, and, ideally, the price is good for both.
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In the 1980s, in order to simplify buying and selling crude in the international marketplace - and guarantee pricing transparency, the industry established benchmarks, a sort of pricing reference point. The two primary benchmarks are Brent crude and West Texas Intermediate, or WTI; nearly 200 more lightly traded references also exist.
Brent comprises light, sweet production from the North Sea and is used to price oil traded in Europe, Africa, Australia, and parts of Asia - roughly two-thirds of the world's volume. WTI prices U.S. production as well as crude from Canada, Mexico, and South America.
"With expanded logistics at American oil trading hubs improving refinery access to domestic crude, and a supply-based rally raising WTI prices toward the $50 per barrel mark, it is time to reestablish WTI as the world's oil price benchmark," explained Canary, LLC CEO Dan K. Eberhart.
"The fact is, even before the price decrease, or the Brexit, the four fields in the North Sea that constitute Brent crude - the eponymous Brent, Forties, Oseberg, and Ekofisk - are literally drying up."
First exploited in the 1970s, they are mature fields where production fell from 420,000 barrels per day in 2009 to 260,000 barrels per day in 2014. The fields supplying Brent crude have long been in decline, but now, with the price drop & WTI-related shale levels increasing, drilling projects beyond 2017 are drying up.
In contrast, during roughly the same period, U.S. production doubled to more than 9.43 million barrels per day, largely on the strength of new shale development. Shale will continue to alter the supply side of the world's energy equation, particularly since the U.S. lifted its 40-year ban on crude oil exports. Couple that with increasing demand in India, & Asia, especially among the Association of Southeast Asian Nations (ASEAN), that can be met by North American crude traded on WTI, and it becomes increasingly clear that Brent may no longer be the best choice as the basis for global oil pricing.
Keywords for this news article include: Asia, China, Canary Llc.
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