[Kingcoal]

$this->bbcode_second_pass_quote('', 'H')owever, many Russian oil industry observers ask why, when Russian oil supplies the bulk of spot market volume in Europe, and when there is a clear rise in the proportion of sour crude to sweet, Russia's relatively heavy sour Urals crude remains tied to the traditional North Sea benchmark rather than becoming a benchmark in its own right.

[MrBill]

There are dozens of various grades aside from WTI, Brent and Dubai like the Buzzard contract and others like Urals. There are cash traders and publications like Platt's that keep extensive track of commercial contracts based on these heavier, sour grades and their discount to sweeter benchmarks.

Coming orginally from the grain business as a cash trader we traded 'basis' that is the price over or under the benchmark, say on the CBOT or WCE, where we hedged our flat-price exposure using the futures market. Naturally, the closer the cash market in spec is to the futures contract the better the hedge. Less basis risk.

But I am guessing that cash oil traders know the quality of their oil very well. And at a certain price premium or discount they will readily switch within the confines of what they can refine. So a refiner with better capacity can buy cheaper grades and still afford to refine to higher standards of low sulfur products. Cash arbitrage.

Therefore, setting up new benchmarks for futures is more about avoiding cash problems that might occur in local markets, like the WTI delivered to Cushing, if there was a short-squeeze and someone demanded delivery of a grade that was in short-supply. However, to be honest, that should only affect a few cash traders who really do know what they are doing, whereas investors and speculators have the right to close longs or short ahead of contract maturity and physical delivery.

I think it is something for oil producers and refiners to sort out for themselves. It really does not affect the rest of us one way or another. Cheers.