Off-spec WTI Midland sparks concern for Dated Brent chain nominations

Quantum Commodity Intelligence – US crude exports from Gulf Coast terminals have been subjected to additional quality checks after concerns were raised over possible off-spec cargoes due to excess metals contaminating Texas shale oil, according to a Reuters report.

This a major red flag for Dated Brent, the world's most important physical commodities benchmark, where WTI Midland has come to play a leading role in the market since its inclusion in June.

According to the Reuters report, concerns have been raised over possible excessive levels of iron and vanadium crude, which have found their way into WTI Midland.

This may indicate cross-contamination, which could happen during pipeline transportation, storage tanks or in the blending process.

A source told Quantum that higher metals could also be naturally occurring from field production. However, there appears to be no previous issues with the Permian Basin, which spans West Texas and New Mexico.

Platts' methodology states that WTI Midland nominated via the Dated Brent process must be supplied directly from the Permian, then transported via one of several approved pipelines and shipped from one of 11 approved export terminals.

Dated chains

The report indicated that so far only one WTI Midland cargo running via the 'Dated chains' had been off-spec, but that alone is likely to be enough to ramp up scrutiny of future cargoes nominated via the chains, and likely to lead to additional testing on cargo samples.

To settle a Brent cash forward position, also referred to as cash BFOE, the seller has to nominate a physical cargo of Brent, Forties, Oseberg, Ekofisk, Troll or, since June, WTI Midland.

As the nomination process is the seller's option, the lowest-value cargo will be passed into the forward chains, with WTI Midland by far the most nominated grade since the June inclusion.

Platts methodology states that WTI Midland nominated into Dated chains should not exceed 10 parts per million (ppm) on iron and 2ppm on vanadium. Anything above that level could impact on refinery performance.

Nomination

The cargo is typically nominated a month before it becomes physical (or Dated), so if the buyer receives an off-spec cargo via the Platts Market-on-Close window then mediation will be sought.

Sources said in such an event, Platts may mediate to find a solution between buyer and seller on any transaction that takes place during the Platts MOC, which may involve the seller offering a financial adjustment to compensate for the quality.

Counterparties may also resolve quality disputes directly, particularly where companies have a long-standing trading relationship.

However, Platts does not oversee the Dated chains and only acts as the administrator for transactions that occur directly in the MOC window. Outside of the MOC, counterparties resolve any dispute directly, although in theory it could go to arbitration if the two sides are unable to agree. 

Sources also said US Gulf terminals have tightened up on quality checks, since losing status as a 'Platts approved' terminal could cost business.