WTI Entering a Renaissance as a Global Benchmark

The NYMEX Light Sweet Crude Oil (WTI) futures contract set new record highs in both volume and open interest in 2017.  Open interest surged to a record 2.69 million lots in November 2017, while daily trading volume averaged 1.23 million contracts per day in 2017, up 12% over 2016.

The WTI futures contract is enjoying a renaissance in the global marketplace, and WTI has re-established itself as the price discovery leader in the crude oil market.  Two key drivers have propelled the WTI futures contract into its renewed status as the global benchmark:  1.)  Export growth; and 2.) record U.S. oil production. 

U.S. Crude Oil Exports

U.S. crude oil exports nearly doubled in 2017 to average over one million b/d, up from 600,000 b/d in 2016, which was the first year that U.S. exports were allowed.  The growth in exports has been transformative for the U.S. crude oil market.  Houston has become a major export hub, and new infrastructure has been constructed to process the growing export volumes.  These infrastructure changes have transformed the U.S. into the marginal supplier of oil to the world. 

U.S. Crude Oil Production Proves Resilient

U.S. crude oil production has risen substantially from 5.1 million barrels per day (b/d) in January 2009 to 9.61 million b/d in October 2017.  In its latest estimate, the U.S. Energy Information Administration (EIA) predicts oil production to hit a new record high in 2018 of 10.3 million b/d, and then rising to 10.9 million b/d in 2019.

U.S. Domestic Crude Oil Grades are Exploding

The new storage and pipeline infrastructure in the United States has had a transformational impact on the domestic crude oil grades market, as the U.S. market focuses on export opportunities.  These changes have sparked an explosion in trading volume in U.S. domestic grades, and this also enhances the role of WTI as the reference that the grades are priced against.

The average daily volume (ADV) across the NYMEX domestic crude oil grades complex rose by an impressive 82% in 2017 over 2016. As of December 2017, the ADV hit a record-high of over 10,000 lots per day. Further, open interest in the domestic grades contracts exploded by 45% in 2017 over the prior year, and reached a record high of 400,000 lots by year-end 2017.

Notable open interest (OI) records in 2017 in the U.S. domestic grades complex are:

  • Record OI of 136,500 lots in the WTI Midland (Argus) vs. WTI Trade Month futures contract (code WTT)
  • Record OI of 98,000 lots in the WTI Houston (Argus) vs. WTI Trade Month futures contract (code HTT)
  • Record OI of 65,000 lots in the Argus LLS vs. WTI Trade Month futures contract (code E5)
  • Record OI of 26,000 lots in the WCS (Net Energy) Monthly Index futures contract (code WCW)

Looking Ahead to 2018

The impressive oil export growth and rising U.S. production will be the key drivers of expansion that will propel the WTI futures contract and the U.S. domestic grades complex in 2018.

It is notable that the growth in exports has been transformative for the U.S. crude oil market.  New infrastructure has been constructed in the U.S. Gulf Coast to process the growing export volumes, and these upgrades have transformed the U.S. into the marginal supplier of oil to the world.  These trends will be reinforced in 2018, and the WTI futures contract will continue to be a key price-setter for the global marketplace.


About the Author

Dan Brusstar is Senior Director of Energy Research & Product Development/Marketing at CME Group.