With oil prices thoroughly decoupled from the fundamentals of supply and demand, Saudi Aramco has decided it is time to nudge the market towards reality.

Last week, the world’s biggest oil company said that as of next January, it would use the Argus Sour Crude Index instead of West Texas Intermediate (WTI) crude as the benchmark for pricing all grades of Saudi crude sold to US customers.

Why that would make a difference takes some explaining, but it boils down to a decision to link Saudi crude sales to a market that the state-owned Aramco can influence through the number of tankers it dispatches towards the US coast.

That is not possible with WTI-based pricing because the delivery point for the US benchmark crude – a tank farm at Cushing, Oklahoma, that can hold between 45 million and 50 million barrels – is landlocked. And the depot is short of pipelines to link it to the coast and the rest of the country.

Cushing storage is therefore physically disconnected from the global seaborne crude market, leaving the WTI price more influenced by local delivery bottlenecks than conditions in the wider market.

On the New York Mercantile Exchange (NYMEX), the world’s biggest forum for oil futures trading, the main crude oil futures contract is also based on WTI. Its pricing specifically reflects the price and availability of crude at Cushing, which may have little to do with the oil available to and needed by US Gulf Coast oil refineries. That has contributed to the volatility of NYMEX crude prices and created an enticing opportunity for commodities speculators to enter the market for quick profits.

“The Saudis are figuring out they are losing too much money on the volatility of the WTI contract,” Carl Larry, the president of the Houston consultancy Oil Outlooks and Opinions, told Reuters. “There are too many speculators pushing the market around and it’s becoming too hard to keep track of the real value of crude.”

The Saudi government has long decried the situation. In September, the kingdom’s oil minister, Ali al Nuaimi, said he favoured tighter oil market regulation to curb speculation and reduce price volatility. OPEC and the governments of some oil-consuming countries agreed, but so far there has been more talk than action on commodity market reform. In moving to the Argus index as its reference point for pricing, Aramco has fixed on a basket of US crudes with similar properties to its own. The US and Arabian sour crudes are stickier and contain more sulphur than WTI, and compete to supply the same US Gulf Coast refineries.

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