In oil markets, the future looks sour

NEW YORK/HOUSTON (Reuters) – Saudi Arabia’s new method of pricing oil bound for the United States reflects the world’s growing reliance on sour crude, which is harder to refine.

The sour grades of crude may eventually displace tried-and-true light, sweet crude to become a benchmark.

That could help producers and refiners manage risk as they deal with increasing volumes of higher-sulfur oil, and it may also cut speculators’ influence on oil prices, analysts said.

Starting in January, Saudi Arabia will price U.S.-bound barrels against the Argus Sour Crude Index of three sour crudes produced in the U.S. Gulf. That will end 15 years of pricing against West Texas Intermediate, the reigning light, sweet benchmark.

The vast majority of oil futures contracts are based on WTI and Europe’s Brent oil. Sour crude — whose higher sulfur content makes it harder to refine — is meekly represented on exchanges but has come to play a central role in physical oil markets.

“There’s a growing need for sour crude markers,” said Carl Holland of Energy Trading Solutions. “In my view they will grow to be of equal or greater importance to sweet crude markers.”

Reuters