Major oil exporters eye Argus switch

MEXICO CITY Thu Nov 5, 2009 3:24pm EST

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MEXICO CITY (Reuters) - Major oil exporters in Latin America and the Middle East have expressed "strong interest" in switching the basis of their oil prices to Argus's U.S. Sour Crude Index following Saudi Arabia's adoption of the index, an Argus executive said on Thursday.

Euan Craik, chief executive of Argus's U.S. operations, declined to name the countries that were studying the change but described the interest as "unprecedented."

"It feels like a sea change. It's something unprecedented in our experience," Craik said in a telephone interview.

Last week, Saudi Arabia abandoned West Texas Intermediate crude oil as the basis of its pricing formulas for U.S. customers amid mounting frustration with the divergence between the benchmark U.S. crude and market conditions on the U.S. Gulf Coast.

The switch by Saudi Arabia to use Argus prices is a coup for the London-based company, which competes with McGraw-Hill Companies Inc's MHP.N Platts unit in providing price assessments in physical energy markets.

Analysts have described the Saudi decision as a step to realign the world oil market amid frustration with WTI, which has at times moved out of alignment with global oil trade flows due to storage and pipeline capacity constraints at its hub in Cushing, Oklahoma.

Swings in the value of WTI make it more difficult for refiners to hedge purchases of crude from distant suppliers as the price of a cargo is often set weeks after it has been purchased.

Since Saudi Arabia's move last week to adopt the Argus price reference, speculation has mounted that other sour crude producers who export to the United States may follow Saudi Arabia's move.

However, none of the major sour crude producers that compete with Saudi Arabia for U.S. market share have made any public statements.

The New York Mercantile Exchange is already studying creation of a financially settled swap based on the Argus index that would allow refiners and financial players to trade Argus-basis oil.

A move to the Argus index would not knock WTI off its pedestal, CME Group (CME.O), the operator of the NYMEX said, as the index is still calculated with reference to WTI prices.

(Reporting by Robert Campbell; Editing by David Gregorio and Lisa Shumaker)

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