Platts, a leading global energy, petrochemicals and metals information provider and top source of benchmark price references, announced that, starting today, it will publish a new daily oil price assessment Platts Light Houston Sweet that reflects the value of light sweet crude flowing from inland domestic production centers to Houston, Texas.
Platts Light Houston Sweet (LHS) is the latest in a series of assessments launched by Platts in response to the significant structural shifts taking place in the U.S. crude market as “tight oil*” exploration and development has dramatically increased domestic production and reshaped traditional crude flows and refinery demand patterns. According to the U.S. Energy Information Administration, domestic U.S. crude oil production has reached 7.5 million barrels per day (b/d) as of July 19, the highest levels since 1989.
“The development of over 1.7 million b/d of pipeline capacity to bring U.S. crude production to Houston by 2014 has set the stage for a new spot market and created the need for a new marker that reflects both U.S. Gulf Coast and global crude fundamentals,” said Esa Ramasamy, Platts editorial director, strategic oil markets development. “As new pipelines and other forms of transportation enable domestic crude to flow to the Gulf Coast rather than being trapped inland, the U.S. market is rapidly resetting itself. The change is already evident in the narrowing price spread between WTI and Brent, two global benchmarks. The rise in U.S. domestic crude oil production is beginning to be felt globally.”
Houston, currently the location for several Americas refined products benchmarks, is the largest refining center in the U.S. with 2.2 million b/d of refining capacity. With the rebirth of U.S. crude production nearby, the Gulf Coast port city is undergoing a massive infrastructure renaissance, evidenced by the development of 31 million barrels of crude oil storage and the expansion of local pipeline capacity between storage terminals and refineries by the middle of 2014. Pipelines, including Enterprise/Enbridge’s Seaway and Magellan’s Longhorn, are connecting inland production centers to the U.S. Gulf Coast, with Houston as the main target of these shifting crude oil flows.
“Houston’s superior refining capacity, storage, and waterborne loading infrastructure positions it to become a key pricing hub in the Americas,” said Suzanne Evans, senior manager, Platts’ Price Group. “The prolific Permian Basin the home of WTI and the Eagle Ford shale are in Houston’s backyard. This new crude oil production, combined with movements of Domestic Light Sweet from the Cushing, Oklahoma, hub to Houston via the Seaway Pipeline, is creating a vibrant light, sweet spot market in Houston.”
Because of Houston’s position as a market center, Evans added, the new Platts price assessment has the potential to become the benchmark for U.S. crude. “Platts LHS price assessment will not only provide a relevant price for regional traders and producers, but it could become a broader reference point for the Americas because of the unprecedented convergence of supply and demand in Houston,” she said.
The Platts LHS assessment, which is published as a flat price, takes into account trading on both a flat price and a floating price basis. It reflects 1,000 b/d of ratable crude for a minimum of 25,000 barrels in total delivered over the course of the prompt pipeline month on a Free In Pipe (FIP) basis out of three Houston terminals: Magellan East Houston Terminal, Enterprise Houston Crude Oil Terminal and Oil Tanking Houston Terminal.
Platts uses WTI Midland specifications at East Houston in its LHS assessment, and may normalize Domestic Light Sweet and Eagle Ford bids, offers, and transactions at Houston to a WTI Midland specification basis. The quality specification basis for WTI Midland at Houston is detailed in a subscriber note issued by Platts earlier today.
On July 1, Platts introduced a daily assessment reflecting the value of U.S. Gulf Coast propane gas cargoes loading at major U.S. Gulf Coast export centers. Like the LHS assessment, the propane assessment responds to the dramatic increase in U.S. production, specifically significant growth in propane production which has transformed the U.S. from a net importer to a net exporter of propane.
Both the Platts LHS and propane assessments were developed using its Market-on-Close (MOC) methodology, a highly-structured, transparent price assessment process based on the principle that price is a function of time. The MOC process in oil identifies bid, offer and transaction data by company of origin and results in a time-sensitive, end-of-trading-day daily price assessment. For more information on the methodology and quality-control guidelines, visit the methodology and specifications page of the Platts website.
The assessments are published in numerous Platts publications including Global Alert, a real-time news service; Platts Market Data - Oil, a data delivery service; and the publications Platts Crude Oil Marketwire, North American Crude Wire, and Platts Oilgram Price Report.
* Tight oil” refers to crude that is recovered through unconventional techniques such as horizontal drilling and hydraulic fracturing.
Founded in 1909, Platts (platts.com) is a leading global provider of energy, petrochemicals, metals and agriculture information and a premier source of benchmark prices for the physical and futures markets. Platts' news, pricing, analytics, commentary and conferences help customers make better-informed trading and business decisions and help the markets operate with greater transparency and efficiency. Customers in more than 150 countries benefit from Platts’ coverage of the biofuels, carbon emissions, coal, electricity, oil, natural gas, metals, nuclear power, petrochemical, shipping and sugar markets. A division of The McGraw-Hill Companies (NYSE: MHP), Platts is headquartered in New York with approximately 900 employees in more than 15 offices worldwide.
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