A unit of Koch Industries Inc. has returned to the North Sea oil market after being absent for much of the last decade, following the recent overhaul of the world’s most important crude benchmark.
(Bloomberg) — A unit of Koch Industries Inc. has returned to the North Sea oil market after being absent for much of the last decade, following the recent overhaul of the world’s most important crude benchmark.
Koch Supply & Trading LP this week was active in the market’s trading of WTI Midland oil. Earlier this month, the Dated Brent benchmark — traditionally comprised of North Sea oil — was expanded to include the US grade in an effort to boost liquidity in the measure.
Specifically, Koch put a 700,000-barrel cargo of the grade into so-called forward chains, according to people with knowledge of the matter.
Chains — common in North Sea oil trading — allow a company with forward contracts to sell actual barrels of oil to another firm, providing a link between the paper and physical markets. The chaining of WTI Midland oil underscores how quickly the US grade has become an integral part of the revamped benchmark.
Koch didn’t immediately respond to requests for comment.
Dated Brent is used to price more than two-thirds of the world’s crude, and its inclusion of WTI Midland is its biggest overhaul in decades. So far, the change has been a success. The US grade has helped set the benchmark’s price and liquidity has doubled.
Since the trading of June North Sea cargoes started on May 2, about 7.7 million barrels of WTI Midland have been put into chains for the first half of June. That’s the same volume for combined exports of the other grades that make up the benchmark: Brent, Forties, Oseberg, Ekofisk and Troll.
The North Sea has been plagued by dwindling supplies in recent years — a key reason for expanding Dated Brent. Loadings of the measure’s five regional grades are set to slide to just over 600,000 barrels a day next month, the lowest in a year, according to data compiled by Bloomberg.
The inclusion of WTI Midland not only increases “the volume of oil in the benchmark but improves the depth of the market — you get new players involved,” said Adi Imsirovic, director at consultant Surrey Clean Energy and a veteran trader.
Koch was one of the biggest traders in the forward Brent market in the 1990s but the company has rarely been observed as a participant since 2010. In 2016, it bought only one cargo in the pricing window run by S&P Global Commodity Insights, better known by traders as Platts, according to data compiled by Bloomberg.
Still, the company, which owns two refineries and an oil export terminal in the US, is highly active in the country’s crude market. Last year, its terminal in Texas exported about 32 million barrels of WTI Midland, with more than half of volume being shipped to Europe, according to data from Vortexa Ltd., compiled by Bloomberg.
In general, oil flows from the US Gulf to Europe have risen significantly since Russia’s invasion of Ukraine. An average of about 1.6 million barrels a day of US crude, mostly WTI Midland, has arrived in the region so far this year, tanker-tracking data show. That compares with about 1.4 million barrels a day last year.
Daisy Chains
Unlike North Sea grades, there are no available loading programs for WTI Midland. Platts, which compiles the Dated Brent benchmark, only assess bids, offers and trades from cargoes on board Aframax tankers — mid-sized vessels that typically hold about 700,000 barrels of crude. However, more than half of US crude flows to Europe are transported by bigger tankers.
For this reason, the North Sea forward chains provide a rare opportunity to see the volume of the cargoes that meet the criteria set by Platts.
If an equity producer or a holder of forward contracts doesn’t want to take physical delivery of oil for the month ahead, they can nominate a cargo — normally the cheapest of Dated Brent’s six grades — to be placed into the chain, also known as a daisy chain.
The cargo will then be passed to one of the original firm’s counter-parties. If this receiving company doesn’t want to keep the cargo, they can pass it on to another. The chains continue until a final buyer emerges.
So far this month, Trafigura Group has put seven cargoes of WTI Midland for the first half of June into chains. BP Plc has nominated two, while TotalEnergies SE and Koch have nominated one each. Vitol Group has kept five out of the 11 chained cargoes.
–With assistance from Sharon Cho.
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