Two top commodities brokerages are teaming up in a bid to end potentially costly price discrepancies in Canadian crude markets that impact everyone from major oil producers to Alberta taxpayers.
London-based Marex Spectron and One Exchange Corp. of Calgary are launching a new Canadian crude benchmark and extending an offer to rival brokers to join a consolidated index called the Canadian Crude Index Alliance.
The brokers say the move is aimed at providing better trading and hedging opportunities as well as attracting new players to a market they say is among the most fragmented in the commodities world, leading to inaccurate pricing on physical and financial trades of Canadian oil.
"We've been listening to the market for a long time and there's a large segment of the market that wants this," Perry Undseth, president of One Exchange, said by phone.
"If this wasn't something that we felt would be supported, even though we thought it was a good idea, we probably wouldn't have proceeded as quickly as we did."
Together, the brokers say they control about one-third of the market for trades in Western Canadian Select (WCS), a blend of heavy crude and oil sands that serves as the benchmark price for the bulk of Alberta's oil. Net Energy Inc. and Shorcan Energy Brokers, owned by TMX Group Ltd., make up the rest of the market.
Unlike the U.S. benchmark West Texas intermediate oil, prices for WCS are determined by each of the broker participants, leading to discrepancies depending on market activity.
The resulting inefficiencies could cost producers, financial players, and even the Alberta government, which markets a portion of the crude it receives in lieu of royalty payments.
In a statement, Marex chief executive Ian Lowitt said the consolidated index "goes a long way to establishing an industry benchmark for Canadian crude that has greater liquidity and more accurate pricing."
Marex, the world's largest independent commodities brokerage, opened its Calgary office last year after hiring a trio of oil traders away from rival Shorcan.
Marex and One Exchange say their consolidated indices will be available to clients this month through Canadian Enerdata Ltd., an independent price-index publishing and forecasting company that helped establish the AECO price indices for Alberta natural gas markets in the 1990s.