HOUSTON, June 12 (Reuters) - U.S. crude has dominated

global benchmark oil pricing in the year since booming shale

exports joined the mix of European crude used to calculate how

much a barrel of the world's most traded commodity costs.

The shale revolution of the past 15 years has made the U.S.

the world's top oil producer and also transformed the country

from a top importer to a major exporter after Washington ended a

40-year ban on foreign shipments.

Last May, price reporting service S&P Global's Platts added

U.S. WTI Midland crude from the Texas shale fields to the global

Dated Brent benchmark, reflecting U.S. oil's rise in importance

in global markets.

Previously, the benchmark had only included North Sea crude,

whose supply has declined while U.S. crude exports to Europe

surged as refiners sought alternatives to Russian imports, which

the European Union banned in response to Moscow's invasion of

Ukraine.

Platts uses the cheapest among WTI Midland and five grades

of North Sea oil to set the benchmark, a price gauge for roughly

80% of the world's crude, according to the Intercontinental

Exchange. Brent is viewed as a bellwether for the health of the

oil market.

Since its inclusion, WTI Midland has set the price of Dated

Brent more than half the time. WTI Midland is similar in quality

to the North Sea crude used in Dated Brent.

INCREASED LIQUIDITY, LESS VOLATILITY

Volumes of WTI Midland crude headed across the Atlantic have

climbed since its inclusion in the Dated Brent index.

WTI Midland exports hit a record at 2.94 million bpd in

December, according to data from ship tracker Kpler, up by

around 550,000 bpd on the year. About 1.71 million bpd, or more

than half of the December volumes, were headed to Europe, noted

Matt Smith, lead oil analyst at Kpler.

Surging U.S. crude exports have more than compensated for

dwindling North Sea output. The supply of the five grades of

North Sea crude that can be delivered into Dated Brent fell to

about 537,000 bpd in June from about 607,000 bpd a year earlier,

according to loading programs.

North Sea crude output has been falling for decades as

producers have already pumped most recoverable oil from the

fields.

That had left Dated Brent - and the related Brent futures

market - vulnerable to relatively small North Sea supply

problems.

"The market has really embraced Midland as a deliverable

into the Dated Brent contract," said Dave Ernsberger, global

head of pricing and market insight at S&P Global Platts.

"Liquidity in the spot market has doubled with more companies

involved."

Higher liquidity has helped ease the volatility of the

benchmark, making the market more stable despite conflict in the

Middle East, attacks on shipping in the Red Sea and continuing

disruption to oil trade caused by sanctions on Moscow.

Volatility as measured by the daily percentage change in

Dated Brent prices fell to 0.05% in the one year since WTI

Midland's inclusion last May. In the previous four years, it was

a range of -0.4% to 0.6%.

Since WTI Midland's inclusion a growing number of companies

have participated in Dated Brent trading, said S&P Global

Platts' Ernsberger.

A record 35 cargoes traded in the Platts Market on Close in

April 2024, more than four times the number that traded the same

month a year ago.

Among those who have traded Dated Brent since the change are

Saudi Aramco, top Indian refiner Reliance, U.S. shale producer

Occidental Petroleum ( OXY ) and U.S. refiner Phillips 66, according to

S&P Global and market participants.

"People who previously had no interest in Brent now see

opportunity for their business," said Adi Imsirovic, a trading

veteran who has published books and papers on Brent and runs

consultancy Surrey Clean Energy.

The trading arm of Australian investment bank Macquarie

Group ( MCQEF ) has become a top supplier of WTI Midland to Asia after its

inclusion in the contract, Imsirovic said.

Aramco declined to comment, while Reliance, Occidental,

Phillips 66 and Macquarie did not respond.

HEDGING

U.S. producers can sell WTI Midland many months forward into

the Brent market, locking in future revenues and eliminating

some pricing risk, said Ilia Bouchouev, managing partner at

Pentathlon Investments and former president of Koch Global

Partners, a multinational conglomerate with exposure to refining

and global commodities trading.

Trade in the related contracts used to hedge output and the

cost of shipping has also risen, analysts said.

This has helped drive up activity in U.S. crude futures

markets. Combined WTI Houston and WTI Midland average daily

volumes of futures lots traded as differentials to WTI futures

soared to 19,188 in May, nearly triple the 7,068 in May 2023.

"The overall global trading pie is getting larger",

Bouchouev said, as traders explore new spread and arbitrage

opportunities.

Investors with exposure to Brent contracts are now also

exposed to U.S. crude prices.

"We are certainly seeing that reflected in hedging activity"

across the WTI complex, said Peter Keavey, global head of energy

at the CME.

Traders are using forward freight agreements (FFAs) to hedge

the price risk for the cost of shipping the oil across the

Atlantic.