Why is a new global crude benchmark needed?
General Index has developed a new crude index to better reflect market conditions and the shifting roles played by the three major benchmarks - Brent, WTI and Oman - in the producing areas of the world.
The weaknesses of existing benchmarks – both futures and physical – have been laid bare during the early months of 2020, with wild swings from positive to negative and back again over just a few days. The prices published were not accurate reflections of market value over this period but instead were the result of the operating parameters of specific contracts and price-assessments, and mismatches between futures and physical methodologies.
GX has been observing the issues caused by over-reliance in a single benchmark as well as the volatility and unexpected results seen in times of stress near expiration of the contracts. Recent examples include physical backwardation in Brent at times of global surplus or negative values at Cushing due to its geography. Those challenges are inherent but become further magnified when the market suddenly changes.
How is GCX calculated?
The GCX index reflects the respective production volumes of crudes which price off or link to the three main tradeable benchmarks - Brent, WTI and Oman - via their respective liquid futures contracts, and the impact their output has on the associated contractual linkages.
These three instruments drive the flat price and their interplay determines, via differentials, how the oil is traded and shipped globally. GX has estimated the impact of these contracts based on oil production figures published by the International Energy Agency and set a percentage allocated to each contract. GX reviews these allocations annually and modifies the allocations after a period of notice. This re-weighting ensures the GX crude series is always representative of current global trade.