Ice, CME contracts target growing Houston market

OREANDA-NEWS. Ice has launched a financial contract for West Texas Intermediate (WTI) at Houston based on Argus assessments, and the CME plans to launch six new contracts there on 8 February.

Ice introduced a contract based on the calendar month WTI Houston differential price on 25 January and anticipates a late February launch of a trade month differential price contract.

The contracts show the rising importance of Houston as a US logistical hub. US pipeline infrastructure has been replumbed in recent years to point toward the Gulf coast, with Houston squarely in the cross-hairs. Houston has become a hub for light sweet crude delivered by pipeline from Cushing and the Permian basin and by barge from the Eagle Ford shale.

Houston has more than 31mn bl of storage capacity at merchant facilities, mostly concentrated at the 20.1mn bl Enterprise Hydrocarbon Terminal site on the Houston Ship Channel, formerly Oiltanking Houston. That terminal is adding another 3mn bl of capacity this year, and more capacity is coming, including the 10mn bl Fairway Energy Partners terminal due on stream by the end of 2016.

Also, the recent lifting of the long-standing ban on most US crude exports should help cement Houston's importance.

"The recent lifting of the US crude oil export ban, increased market volatility, and infrastructure changes have stirred demand for Gulf coast products," CME executive director of energy products Peter Keavey said last month.

CME's contracts include calendar and trade month differential prices, outright prices and balance-of-month (Balmo) contracts.

The Ice and CME WTI Houston contracts are both financially settled and each is for 1,000 bl.

The Ice contract is listed for 60 months forward, while four of the CME contracts are listed for three calendar years forward. The two CME Balmo contracts are listed for the current and following month.

The exchanges are listing the WTI Houston contracts as the physical market continues to grow following the beginning of WTI Houston spot trade in late 2014. Participants are diverse, including producers, refiners, majors and trading houses.

Spot volumes reported to Argus in April 2015, the first trade month of the Argus assessment, were 17,000 b/d. Volumes increased to between 40,000 b/d and 60,000 b/d from the July through November trade months. Trade then reached 87,000 b/d in December, followed by more than 180,000 b/d in January 2016 and over 93,000 b/d for the February 2016 trade month. As of 4 February, 47,000 b/d changed hands for March delivery, with 14 days of trade remaining.

The number of participants tracked by Argus continues to increase with 16 buyers, 15 sellers and 19 unique companies trading in the spot market since Argus started the WTI Houston assessment.

The quality of WTI Houston is more predictable relative to other volumes arriving from Cushing and south Texas, making it a more attractive marker grade for the Houston area.

WTI Houston trades at the Magellan East Houston terminal and consists solely of Permian WTI, piped exclusively on the 275,000 b/d Longhorn and 300,000 b/d BridgeTex pipelines. Once at the terminal, WTI Houston volumes are stored in segregated tanks guaranteeing quality specifications remain unchanged.