European Diesel Trade Thriving After Russia’s Exclusion

Europe’s Intercontinental Exchange Inc (ICE) has revealed that trading in European diesel futures and options has been thriving ever since Russian crude was excluded from the continent’s benchmark. 

ICE has reported seeing a series of open interest records in the gasoil, or diesel, market that it operates for the month of June with open interest in options and quarterly volumes setting new records.

ICE banned the delivery of Russian fuel into its gasoil contract in early 2023 following heavy sanctions by the European Union due to Russia’s war in Ukraine. Prior to that, Russian barrels were delivered to storage tanks in the Netherlands and Belgium. 

“More than 18 months on from ICE’s first successful delivery of Russian-free barrels of gasoil, the contract continues as the most liquid distillate benchmark,” Jeff Barbuto, global head of oil markets at ICE, has told Bloomberg.

Similarly, the inclusion of United States’ WTI Midland crude from the Texas shale fields to the global Dated Brent benchmark has made the benchmark more liquid and less susceptible to manipulations by vastly widening the pool of tradeable cargoes. 

The total supply of benchmark grades including Brent, Oseberg, Ekofisk, Forties, Troll and now WTI Midland has almost doubled from three years ago. Dated Brent accounts for roughly 80% of the world's crude trade. WTI Midland is similar in quality to the North Sea crude used in Dated Brent. WTI Midland has set the price of Dated Brent more than half the time since its debut in the benchmark.

WTI Midland into Dated Brent serves another useful purpose: it prevents North Sea producers from putting their own cargoes into so-called chains. Chains, usually the cheapest grades, allow a company with forward contracts to sell actual barrels of oil to another firm, providing a link between paper and physical markets. Since May 2023, WTI Midland has dominated chains, turning the tables on Forties thanks to the U.S. grade being cheaper despite its superior quality.

"The market has really embraced Midland as a deliverable into the Dated Brent contract. Liquidity in the spot market has doubled with more companies involved," Dave Ernsberger, global head of pricing and market insight at S&P Global Platts has told Reuters.

By Alex Kimani for Oilprice.com

More Top Reads From Oilprice.com

• Africa's Largest Oil Refiner Set for Public Listing
• Argentina's Shale Patch to Boost Oil Exports with Supertankers
• Novatek's LNG Ambitions Hindered by Geopolitical Tensions