In recent months, the United States has significantly increased its oil exports to EuropeThis surge follows the European Union's ban on Russian oil imports, and with Europe urgently trying to fill the supply gap left by the withdrawal of Russian oil, American exports are expected to remain at elevated levelsThe ongoing restrictions imposed by G7 nations on Russian crude oil have further complicated the supply dynamics for European refiners, prompting many to seek alternative sources for their crude oil needs.

The rise in U.Scrude oil exports is anticipated to offset some of the decline in Europe’s imports from RussiaIn 2022, U.Scrude exports to Europe reached an average of 1.75 million barrels per day, marking a substantial increase of about 70% from the previous yearThis trade has strengthened the role of crude oil derivatives linked to West Texas Intermediate (WTI) in the global oil marketplace, ensuring that American oil continues to be a significant player on the international stage.

Europe's Shift Towards Reliance on U.S

and Saudi Crude

Months leading up to the sanctions in December 2022 saw a steady decline in Russian oil exports to EuropeAccording to the International Energy Agency (IEA), imports from Russia had plummeted to around 1.4 million barrels per day by November 2022. In comparison, data from the U.SEnergy Information Administration (EIA) revealed that U.Sexports to Europe had already surpassed this level, averaging approximately 1.55 million barrels per day in October 2022. The IEA's report further noted that U.Scrude accounted for about 12% of European refiners' processing volume.

The accompanying charts illustrate the weekly trends in Russian crude oil exports to Europe and juxtapose the figures from 2022 with those of the previous year, showcasing the sharp decline since September 2022 as data from Bloomberg/Bruegel Institute clearly indicates a decrease in Russian crude arriving at ports across Europe.

European refiners are also increasing their purchases of crude oil from alternative suppliers, notably from the Middle East, where exporters like Saudi Arabia have ramped up their shipments to Europe

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Reports from S&P Global Platts highlight that Saudi oil exports to Europe have steadily risen throughout 2022, averaging about 600,000 barrels per day from early 2022 to October, the highest level since 2019.

Additionally, European refiners have been processing an increasing amount of WTI-linked crude oil, a trend anticipated to persist into 2023 and beyond, further intertwining European markets with the U.Soil landscape.

The Growing Attention on WTI-Led Derivatives

Since 2016, production in the North Sea oil market has been on a steady decline, prompting various stakeholders to implement measures aimed at boosting the amount of oil available for Brent forward contract deliveries, ultimately providing a benchmark for the spot Brent priceRecent data from the EIA and Bloomberg indicates that by October 2022, U.S

crude oil exports to Europe exceeded the shipment volumes that currently support the Brent contracts by approximately 865,000 barrels per day.

Starting June 2023, WTI Midland crude will be included as one of the deliverable oil grades for Brent forward contracts, thereby becoming part of the spot Brent pricing mechanismThe Brent forward contract encompasses transactions for 700,000 barrels of any BFOET crude, which includes Brent, Forties, Oseberg, Ekofisk, and Troll, as well as WTI Midland crude, without a specified loading dateThis means that when forward contract holders notify buyers about the specific loading dates and the oil grades to be loaded, those shipments are considered as having transitioned from the forward market to the spot Brent market.

The inclusion of WTI Midland crude as a deliverable oil has garnered greater attention both from the U.S

crude oil market and among all derivative markets linked to NYMEX WTI futuresIn the months leading up to WTI Midland's incorporation into Brent's framework, trading volumes associated with WTI-linked derivatives showed continuous growthTrading for the WTI Houston crude contract reached its furthest expiry date of December 2026, while WTI Midland future contracts extended to December 2025. As a key indicator of success, the total open interest in Midland and Houston contracts approached 300,000 at the end of December 2022, reflecting a rise of 60,000 contracts over the past year.

The growing interest in trading WTI and American-grade crude comes from transaction companies, producers, and refiners from both sides of the Atlantic OceanNotably, compared to benchmark WTI futures, the trading volumes for WTI Midland crude futures in 2022 averaged 52,000 contracts per month, effectively doubling the trading activity recorded in 2021. Meanwhile, WTI Houston futures reached monthly trading volumes nearing 74,000 contracts, in contrast to approximately 62,000 contracts during the previous twelve months.

With WTI playing an increasingly influential role, more North Sea oil traders alongside broader markets will be pricing their transactions directly or indirectly based on WTI, granting U.S