Now here's a real important story. If you are an oil trader, chances are you traded the New York Mercantile Exchange West Texas Intermediate (WTI) contract. World pricing of oil by the biggest exporters was based on the WTI contract.
Now, suddenly, Saudi Arabia has decided to drop the WTI contract as the benchmark pricing unit for its oil. It is substituting a contract called the Argus Sour Crude Index, which will track the price in the physical market of a basket of U.S. gulf coast crudes, including Mars, Poseidon, and Southern Green Canyon.
What caused this drastic change by Saudi Arabia? Normally WTI crude trades at a premium of $1.00 to $2.00 to Brent Crude. Last January, there was so much oil stored in Cushing, Oklahoma, that WTI fell sharply, selling at a discount of $12.00 to Brent. This threw the oil market into disarray, angering the Saudis. This prompted the change of contracts by the Saudis from WTI to the Argus Sour Crude index. Argus is a London-based company, hence most of oil trading by the big players will now shift to the Argus index in London.
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