The U.S. government's energy agency has adopted North Sea Brent crude as its benchmark for oil forecasts, dropping its domestic benchmark, saying it no longer reflects the price paid for oil by U.S. refineries.
The Energy Information Administration (EIA) said in its annual energy outlook it was abandoning West Texas Intermediate (WTI), traded on the New York Mercantile Exchange , and switching to Brent on the Inter Continental Exchange (ICE).
The move by the U.S. Department of Energy's energy forecaster reflects a migration of large parts of the oil market to Brent and away from WTI over the last year.
"This change was made to better reflect the price refineries pay for imported light, sweet crude oil and takes into account the divergence of WTI prices from those of globally traded benchmark crudes such as Brent," the EIA outlook said.
The agency said WTI prices had "diverged from other benchmark crude prices because of insufficient pipeline capacity to move crude oil to and from Cushing, Oklahoma", the location at which WTI prices are quoted.
The EIA said the growth of U.S. and Canadian oil production had helped overwhelm the transportation infrastructure needed to move crude from Cushing to the U.S. Gulf of Mexico.
Brent is becoming the hedge of choice for big investors, even for U.S. companies, and the volume of Brent futures and options has soared, boosting liquidity at the expense of the U.S. crude.
The landlocked nature of WTI led the world's biggest oil exporter, Saudi Arabia, to drop the U.S. crude as the basis for U.S. sales in favour of a basket of Gulf of Mexico crudes.
The widely followed S&P GSCI index marks this change on Jan. 1, raising its weighting for Brent and cutting WTI, following a migration by major oil producers and consumers.