There is something of a stall occurring in markets this morning as the delight shown by pent up investors dissipates following the détente in tariffs between the US and China. Maintaining a bullish stance based upon the principle that the deal is not as bad as it could have been can only keep realism away for so long. Just because one part, admittedly the most important, of the global trading puzzle is temporarily solved, it does not mean the same will be true of all relationships. The United States must be wary of China, the South-East Asia powerhouse makes for formidable bargaining, this is not so true of less powerful nations. Uncle Sam bosses other negotiations and while each deal in turn seems to bring a fleeting idea of specific attention, cumulatively they serve to rack up a wider mistrust as all fawn to find favoured status at the expense of each other.

Such sentiment is driven home by an interview in the Financial Times where Ngozi Okonjo-Iweala, the Director-General of the World Trade Organization warns on how bilateral tariff deals undermine the equality of trade principles. Warnings against trade warcraft find metrical substance as APEC warn on a business downturn due to the implementation of tariffs. The Asia -Pacific Economic Cooperation projected in a report that exports in the region would rise by only 0.4% versus the 5.7% of last year and cut the economic growth outlook this year to 2.6% from its previously predicted 3.3%.

Oil prices cannot be immune to such pragmatism and unwind half of this week’s gains. Chased down by the Crude build in the EIA Inventory Report, the move is accelerated by what appears to be a cooling of animosity in the US/Iran nuclear negotiations. These complicated talks have been here before, however, with President Trump’s charm offensive in the Middle East and employment of the US favoured negotiator, Qatar, events on the face of it are taking a surprising turn. A top military and nuclear adviser and trustee of the Ayatollah, Ali Shamkhani, is reported across many media channels as saying Iran would be prepared to rid itself of highly enriched uranium, keeping only that which it needs for civilian use, allow inspectors to supervise and commit to never making a nuclear weapon in exchange for immediate, fully comprehensive sanction relief.  

The trouble with Midland

The pricing of the North Sea Dated basket for crude has always been a complicated affair. It obviously started with Brent alone, which is why it still holds onto the nomenclature, but has been added to over many years with successive introductions of other grades due to diminishing production volume that would question its suitability as being the world’s marker. Up and until May 2023, North Sea Dated comprised of five North Sea grades; Brent, Forties, Oseberg, Ekofisk and Troll or as was the mouthful BFOET. Even with the introduction of Troll in January 2018, landings have successively reduced each year from 1mbpd to 588kbpd as of January 2025. The extraordinary growth in derivative trading and the speculative investors flooding to commodities once again deemed the underlying pricing structure not robust enough to meet the demands of fairness and indeed the ability to accommodate increasing liquidity demands. Another crude was needed, and much handwringing ensued as interested parties lined up behind the Norwegian Johan Sverdrup (JS) grade countered by supporters of WTI Midland. JS seemed a logical choice because of its geography and how it added a sour element to the basket, but supporters of Midland outlined the amount of US crude making its way across the pond and both its ability to smooth the process of North Atlantic arbitrage and attract more attention from the powerful US investor base.
The point of the lengthy foregrounding is to emphasise the importance of Midland winning out and the increased influence of how the fortunes of the US oil industry would greatly affect the pricing of the North Sea basket and by doing so the crude prices of the world. Oddly, there remain many who still believe that Midland has not been fully absorbed into the understanding of the market, what with the methodology used to plant it into the basket. Previously, BFOET was assessed on a FOB at terminal basis, but Midland must be priced CIF Rotterdam and then netted back to a virtual FOB price. The other issue is how Midland can be influenced be US Domestic grades before it even is subjected to the rigours of North Sea assessment. Yet for all these possible drawbacks they have not stopped the profound sway Midland is having in colloquially termed ‘Brent’. There is an exponential growth in Midland assessment even in the year-to-date. Big news was made back in December when in one particularly busy Platts window seven cargoes of crude were traded, one each of Brent, Ekofisk and Troll with the other four being Midland. This has become more than a common practice for Midland now dominates ‘the quote’ and the North Sea assessment is arguably completely priced by the buys and sales of the US grade.

However, it is not just North-West Europe feeling the slosh of US crude. The prolific rise in American shale and fracking production has led to eye-watering and world beating production levels of 13.5mbpd. Of that total, 4mbpd on average have been making their way to export and to the many oil destinations of the world. US crude has had an unfettered path into the importance of the global crude puzzle, made all-the-more effectual by its inclusion in the North Sea assessment. This now arrives at an arguably bearish nexus. When Midland was introduced to ‘Brent’ in May 2023 it was at the height of the OPEC+ mix of official and voluntary cuts of 2.2mbpd. The recent change of heart by the Declaration of Cooperation bound to the path of OPEC+ where the trimming of production to maintain prices has ultimately failed, replaced by an accelerating program of production cut abandonment brings a whole new layer of Midland intrigue. Caveats to a negative argument can be applied if Iran loses that ability to export if another change of the current narrative occurs and what China imports look like when tariffs settle down. However, there is about to be potentially an awful lot more crude oil available to the world and if Midland is responsible for the majority pricing of the North Sea assessment and likely to set the basket lower because of even greater availability, it is difficult to envisage how this does not have a deleterious influence on global prices.

Overnight Pricing