30 October 2012, 21:08

ESPO crude as alternative benchmark

ESPO crude as alternative benchmark

Russia’s East Siberian oil may soon make it into the world crude oil price charts, becoming a new benchmark along with Brent and West Texas Intermediate, experts say. Today, the majority of oil deals on international markets are calculated from the per-barrel Brent price. But with Brent reserves on the decline, market players are beginning to eye the Siberian ESPO brand as a possible alternative.

The latter is conditional on several factors: first – sufficient trading volumes, second – the quality of oil, and third – free price formation.

Vitaly Gromadin, an oil and gas market analyst at Arbat Capital, shares his view on the matter:

"Price formation at commodity exchanges calls for the creation of our own benchmark because the WTI price is being pushed down by local factors in the United States, one of them being a lack of transportation infrastructure."

Unlike the U.S. oil blends, the Russian ESPO, a mix of East Siberian and Central Siberian crude, is less exposed to domestic influence. And besides, this is top quality crude with sulfur levels of not more than 1%. Thanks to the East-Siberian-Pacific-Ocean oil pipeline, its future on the Asian markets looks bright, says Alexander Yepishov, chief analyst of the Moscow International Energy Forum (MIEF) “Russia’s Fuel and Energy Complex in the 21st Century”.

"Everything will depend on how dynamically Russia enters the Asian-Pacific markets, how it develops transportation and technological infrastructure, how Gazprom and other companies advance their eastern programs. When Russia’s presence there becomes significant, things will start to change."

As output at key Brent deposits in the North Sea slumps rapidly, while the development of new oil fields is too costly, some Western analysts are predicting that by 2015, ESPO has every chance to become a regional crude benchmark in Asia. Next year, Russia is planning to sell about 400,000 barrels. Another 100,000 barrels per day – and Siberia’s ESPO will rank on a par with Brent. If this happens, the situation on the world fuel and energy market may change significantly in Russia’s favor.

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