Argus Media said Wednesday its Sour Crude Index will be adopted by Saudi Aramco to set prices for oil sold in the US, in a move away from a formula tied closely to light, sweet crude futures traded on the New York Mercantile Exchange. From January, Saudi Arabia will base the price of oil for its US customers on a new index developed by Argus, the London-based oil pricing company. The backing of the world's biggest oil exporter gives new clout to the five-month-old benchmark, and to the Gulf Coast market where the oil tracked in the Argus index is delivered. Argus and rival Platts have argued for years without gaining much headway that growing production in the Gulf of Mexico makes the region better-suited for setting oil prices than Cushing, Okla., the delivery point for barrels underpinning the Nymex futures contract. The Argus Sour Crude Index will track the price in the physical market of a basket of US Gulf Coast crudes, including Mars, Poseidon and Southern Green Canyon. Argus said the change in policy reflected the “increased importance of the US Gulf coast sour crude market”. The decision by the biggest oil exporter could encourage other producers to abandon the benchmark and threatens the dominance of the most heavily traded oil futures contract. The surge in oil inventories in Cushing, Oklahoma, where WTI is delivered into America's pipeline system, depressed the value of the WTI contract against other benchmarks, throwing the oil market into disarray. In January, WTI, which usually trades at a premium of $1-$2 a barrel to Brent, fell sharply, leaving it at a discount of almost $12 - a record gap. This dislocation in the market continued well into the summer. Edward Morse, chief economist at LCM Commodities in New York, said that the Saudi move was linked to the large swings in WTI prices against other benchmarks early this year. New York's main contract, light sweet crude for December delivery, fell by a hefty $2.09 to end at $77.46 on Wednesday. London's Brent North Sea crude for December shed $2.06 to $75.86 a barrel.
