Kuwait to switch to ASCI

Kuwait will begin pricing oil sold in the US off of the Argus Sour Crude Index from January, dumping Platt's West Texas Intermediate, or WTI, the second country to make the change after Saudi Arabia, an oil official in the Gulf state told.
"We don't want to be the only ones not following the Argus pricing," said the official in Kuwait. "We share the same views of other oil exporters to US about the fluctuations in WTI and we want a better benchmark."

Saudi Arabia, the world's biggest oil exporter, decided in October to drop the long-time WTI benchmark, which is based on a formula tied to light, sweet crude futures traded on the New York Mercantile Exchange, or Nymex. State-owned Saudi Arabian Oil Co. will implement the new policy for January oil sales to the US.
Customers were notified by state-run Kuwait Petroleum, people familiar with the change said. Kuwait sends about 250,000 bpd to Gulf Coast refiners, according to the US Energy Information Administration. A spokesman with Valero Energy, the largest US refiner, confirmed that it was notified about the switch.

Kuwait was only the 11th-largest exporter of oil to the US in September. The switch confirms widespread expectations that Saudi Arabia's decision in October to use the Argus index would lead other producers to convert. Iraq and the United Arab Emirates are seen as likely candidates to make a similar move.
The Argus index, published by London-based Argus Media launched the ASCI in May this year to track the price of lower-quality oil blends produced in the Gulf of Mexico that are of similar quality to most of the oil imported from the Middle East. The dominant WTI benchmark, a price assessment of the New York Mercantile Exchange's light, sweet crude futures, is based off higher-quality oil delivered to Cushing, Oklahoma.

Kuwait's switch could also bolster the potential market for derivatives based off of the Argus index. Both Nymex and competitor IntercontinentalExchange (ICE) launched futures contracts aimed at Saudi Arabia's US customers, but have seen little volume so far. Between the 1 mm bpd sent to the US by Saudi Arabia and Kuwait's volumes, about 7 % of oil processed by US refiners is priced off of the Argus index.
Argus and rival Platts, a unit of McGraw-Hill Cos. (MHP), have argued for years that growing production in the Gulf of Mexico makes the region better-suited for setting oil prices than Cushing, Oklahoma, the inland delivery point for barrels underpinning the Nymex futures contract.

WTI pricing often reflects storage and pipeline capacity problems at Cushing, while oil from the Gulf of Mexico has several potential delivery points and more pipeline routes out of the region, making a storage crunch less likely.
Venezuela's oil minister Rafael Ramirez has already applauded Saudi Arabia's decision to move away from WTI and said his country may do something similar. The WTI benchmark has suffered from fluctuations due to the rampant speculation on crude futures trading on the Nymex, the world's mainplatform for oil trading. Saudi Arabia exported more than 1.5 mm bpd of crude oil to the US in 2008, second only to Canada, according to figures from the US Energy Information Administration, or EIA.