Nigeria’s crude oil grades included in ICE’s, WAF Index

The recent launch of the first set of derivatives linked to the West Africa crude oil market by InterContinental Exchange (ICE), has offered opportunity for traders to use the ICE platform to trade derivatives linked to Nigeria’s four largest crude oil grades being Bonny Light, Forcados, Qua Iboe and Bonga.
Bonny Light grade rebounded by 1.27 per cent during the week.
The cashsettled future will be based on a daily assessment by crude oil pricing agency, S&P Global Platts, for a “WAF index” backed by the four grades, each of which will carry a weighting of 25 percent.
The contract will be based on the differential of the four crudes to the Dated Brent benchmark price and will represent 1,000 barrels of oil.
Dated Brent is currently underpinned by five North Sea crudes–Brent itself, Forties, Oseberg, Ekofisk and Troll–which jointly account for less than 1 percent of the roughly 99 million barrels per day of global oil production.
Analysts at Cowry Assets Management said that the practice of reviewing the Brent is informed by gradual decline in crude oil production at its traditional light, sweet Northwestern fields of Europe where the quality of oil is now evolving include heavier, sourer and more acidic grades at the newest, largest fields in the region.
Hence, the need to take measures to sustain the light and sweet constituents of the popular benchmark which is second to none in terms of transparency of its pricing as it is closely assessed on a daily basis.
In the past, the Dated Brent basket has welcomed additions since its assessment started on its first constituent, the Brent grade itself, in 1987.
From then onwards, Forties and Oseberg were added n 2002 to form the Dated BFO, Ekofisk was added in 2007 to form the Dated BFOE, and then in 2017, Troll was introduced to form the Dated BFOET.
They also said that the inclusion of Nigeria’s grades in the dated WAF index (and perhaps Brent in the future) is expected to provide greater transparency to and aid price discovery in the West African crude market.
It also underscores their relative importance in the global crude oil market, and is expected to provide greater exposure to investors at the financial markets and even potentially lead to increased interest from new buyers of Nigeria’s physical cargoes at the over-the-counter derivatives market where buyers and sellers trade oil cargoes.
Consequently, this could provide the much need support for Nigeria’s crude oil exports which have in sundry times struggled to find required demand.
Although, the inclusion of Nigeria’s grades would likely increase volumes of physical cargoes underlying the index (which could also exert downward pressure on the index), the projected increase in global crude oil demand of about 100 million barrels per day is expected to provide some support to the dated basket; hence, enhancing Nigeria’s market share as well as financial position.
For Nigeria to benefit maximally, it will need to ensure steady supply of crude oil to the global market from an oil-rich Niger Delta region notoriously susceptible to disruptions.

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