UPDATE 1-Kuwait to price U.S. oil cargoes on ASCI:sources

Mon Dec 14, 2009 8:50pm GMT

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By Joshua Schneyer and Luke Pachymuthu

NEW YORK/DUBAI, Dec. 14 (Reuters) - Kuwait, the world's No. 4 oil exporter, will switch the basis on which it prices oil cargoes bound for the United States to the Argus Sour Crude Index (ASCI), following a similar move by top world exporter Saudi Arabia, sources familiar with the plans told Reuters on Monday.

Kuwait will soon start pricing its U.S. exports against ASCI, a basket of sour crudes produced in the U.S. Gulf of Mexico, the sources said. They did not specify whether the switch would take effect immediately, but said state-run oil company Kuwait Petroleum Corporation sent a letter to U.S. buyers, informing them of the switch.

U.S. refiners have been expecting the switch in Kuwaiti pricing. Aramco, the Saudi state oil company, has already made the switch to ASCI for the basis of its U.S. exports, dropping West Texas Intermediate (WTI) prices published by Platts.

Kuwait, whose 246,000 barrels a day of exports to the United States in September were about one-fourth of Saudi Arabia's U.S.-bound shipments, depends heavily on Saudi prices to determine the value of its own exports.

It was "inevitable for (Kuwait) to make the switch," one veteran crude trader with an oil major said, since Kuwait already prices its crude sales to the United States at a differential to Saudi barrels.

"But more importantly they will do this because the Argus index is just more reflective of the kind of crudes they are selling."

Sour crudes, including grades like Mars MRS- included in the Argus Index, are growing in popularity among U.S. refiners, especially in the key refining region of the U.S. Gulf Coast.

WTI, whose main delivery point is Cushing, Oklahoma, is light and sweet, while Saudi Arabia and other Arabian Gulf producers export mostly medium-sour crudes into the United States.

Prior to the switch, Saudi Arabia relied for 15 years on U.S. benchmark WTI crude as the basis of its U.S. export pricing, but WTI for prompt delivery has been trading at unusual discounts to other crude contracts this year.

A glut of WTI at Cushing has depressed prices and led some to question whether WTI remains a reliable benchmark.

The growing popularity of sour crudes, which are typically harder to refine but cheaper, has helped give rise to several new sour crude contracts that began trading this month and last on exchanges like NYMEX and ICE. (Editing by Christian Wiessner)