OREANDA-NEWS. Declining Eagle Ford production and less Domestic Sweet Blend (DSW) arriving at the Houston coast spurred increased trading activity for WTI Houston, which reached record levels for both the December and January trade months.

This is a trend likely to continue if competing grades keep declining and DSW suffers from ongoing quality issues. Over 180,000 b/d of WTI Houston has traded for January-delivery with one day of January trade remaining, rising over the prior record of over 87,000 b/d exchanged for December-delivery, and up from the August-November trade month average of roughly 53,000 b/d.

Production for Eagle Ford crude, a substitute for WTI Houston, will be lower by about 510,000 b/d in January, compared to a peak of over 1.71mn b/d in March, according to US government data.

Demand for Eagle Ford crude increased as new splitters came online and refiners adapted their processes to the greater availability of domestic light sweet crude earlier this year.

Less DSW has reached the Houston coast, with differentials in the region insufficient to recoup transport fees incurred by piping the Cushing blend to Houston. Storage at Cushing, Oklahoma, is also cheaper for market participants to engage in a contango play, in which they store oil now to sell at a later date at a higher price. This has discouraged shipments to the coast from the Cushing storage and pipeline hub.

Less DSW is being marketed at the Texas coast as demand for DSW in the Houston market has receded owing to the worsening quality of the blend, including an increasing level of metals content. WTI Houston volumes arrive solely from the Permian production area, making quality more predictable.

Lower supply and worsening quality of substitutes encouraged more participants to enter the WTI Houston spot market. As the market matures, trade activity will likely continue to grow as potential participants see lower risk of entry into a market with growing liquidity.

While global benchmarks remain weak, US light sweet production should continue to decline. The Permian basinis the exception, providing plentiful supply to the WTI market in Houston. Permian basin production is expected to increase by 14,350 b/d in January, to 2.034mn b/d, according to US government data. If other domestic light sweet production unexpectedly increase in the first half of 2016, or if DSW quality improves and returns to the Houston coast, WTI Houston trade could plateau or even decline.