Petrobras abandons WTI, joins move to Brent pricing

* Switch spurred by growing gap between Brent and WTI

* Company began changing contracts 3-4 months ago

* Exporters Saudi Arabia and Colombia already switched

By Brian Ellsworth and Bruce Nichols

RIO DE JANEIRO/HOUSTON, Oct 21 (Reuters) - Brazilian state oil company Petrobras has switched its pricing of its U.S.-bound crude oil exports to a Brent benchmark, the company's supply director said on Friday, the latest sign of the waning influence of the West Texas Intermediate marker.

While Petrobras ships a relatively modest 245,000 barrels a day of crude to U.S. buyers, the switch is yet another blow to the beleaguered U.S. benchmark, which has grown increasingly isolated as airlines, exporters, hedge funds and even commodity indexes shift more of their trading to Europe's Brent.

The Brazilian firm quietly made the shift several months ago, Petrobras Supply Director Paulo Roberto Costa told Reuters. In September, Colombia also switched entirely to Brent-based pricing, although the biggest U.S. suppliers in Latin American -- Mexico and Venezuela -- continue to use WTI.

"The gap between WTI and Brent was too big, so we moved to Brent," Costa said in a telephone interview.

The difference or "spread" between the North Sea and U.S. crude pricing benchmarks has reversed sharply from a $2 difference in favor of WTI to a $25 gap in favor of Brent in the past year, driven by a flood of Canadian crude into U.S. storage tanks that has depressed the WTI price.

The spread and oil price volatility due to global economic and political issues have increased the risk for sellers of foreign crudes historically priced against WTI, so producing countries increasingly have looked to Brent.

Costa said the move made sense from a tax standpoint because the company's royalties and excise taxes are paid on the basis of Brent crude.

Petrobras' departure from WTI is significant because Brazil within the next ten years is expected to become a major oil exporter as it taps into the ultra-deep-water fields in the region known as the subsalt.

Though much of that crude over the next five years will go to refineries in Brazil, which is boosting capacity to meet growing domestic demand, over the medium term the South American nation is expected to become one of the world's biggest crude suppliers outside OPEC.

The effectiveness of WTI as a world benchmark has been questioned for years because it does not compete like Brent on the world market. It delivers to the interior of North America, at Cushing, Oklahoma, and stays in the interior due to a lack of coast-bound pipelines.

Global demand for crude has kept Brent strong, pushing the spread between WTI and Brent to record levels. The spread was $2 a barrel in favor of WTI as recently as late 2010. It settled Friday at $22.16 in favor of Brent.

On Friday, the IntercontinentalExchange said open interest in its Brent crude oil futures contract had reached a record high of nearly 1 million contracts. Open interest in New York Mercantile Exchange WTI contracts stands at around 1.4 million, down 15 percent from a record in May.

The move away from WTI accelerated in 2010 when Saudi Arabia switched from WTI to the Argus Sour Crude Index as a basis for pricing its shipments to the United States. Other exporters to the United States have followed.