FAQ: NYMEX Physically-Delivered Light Sweet Crude Oil Futures

  • 15 Dec 2017
  • By CME Group
  • Topics: Energy

1. What are the amendments to the WTI quality specifications?

NYMEX announced it will amend the quality specifications in Rule Chapter 200 of its physically-delivered Light Sweet Crude Oil futures contract effective Tuesday, January 2, starting with deliveries against the January 2019 contract month and beyond.

Specifically, CME Group is amending the contract specifications to include five additional quality test parameters which will provide assurance that the quality and integrity of West Texas Intermediate (WTI) is maintained.

The current quality specifications in the Light Sweet Crude Oil futures contract will remain unchanged, and five additional quality parameters will be inserted for distillation, vanadium, nickel, total acid number (TAN) and micro carbon residue.

Current NYMEX Light Sweet Crude Oil Contract Specifications

  1. Sulfur: 0.42% or less by weight as determined by A.S.T.M. Standard D-4294, or its latest revision
  2. Gravity: Not less than 37 degrees API, nor more than 42 degrees API as determined by A.S.T.M. Standard D-287, or its latest revision
  3. Viscosity: Maximum 60 Saybolt Universal Seconds at 100 degrees Fahrenheit as measured by A.S.T.M. Standard D-445 and as calculated for Saybolt Seconds by A.S.T.M. Standard D-2161
  4. Reid vapor pressure: Less than 9.5 pounds per square inch at 100 degrees Fahrenheit, as determined by A.S.T.M. Standard D-5191-96, or its latest revision
  5. Basic Sediment, water and other impurities: Less than 1% as determined by A.S.T.M. D-96-88 or D-4007, or their latest revisions
  6. Pour Point: Not to exceed 50 degrees Fahrenheit as determined by A.S.T.M. Standard D-97

Amended NYMEX Light Sweet Crude Oil Contract Specifications – Beginning January 2019

Five Additional Tests

  1. Micro Method Carbon Residue: 2.40% or less by mass; as determined by ASTM Standard D4530-15, or its latest revision
  2. Total Acid Number (TAN): 0.28 mg KOH/g or less as determined by the first inflection point; using ASTM Standard D664-11a (2017), or its latest revision
  3. Nickel: 8 parts per million (ppm) or less by mass; as determined by ASTM Standard D5708-15, Test Method B, or its latest revision
  4. Vanadium: 15 ppm or less by mass; as determined by ASTM Standard D5708-15, Test Method B, or its latest revision
  5. High-Temperature Simulated Distillation (HTSD) as determined by ASTM Standard D7169-16, or its latest revision, as follows:
    (a) Light Ends <220°F by HTSD: Not more than 19% by mass
    (b) 50% Point by HTSD: 470°F- 570°F
    (c) Vacuum Residuum >1020°F by HTSD: Not more than 16% by mass

2. Why is CME Group amending its WTI specifications?

CME Group is amending its contract specifications in order to ensure its quality parameters conform to the oil industry standards established by Enterprise Products Partners LP (Enterprise) that govern the common stream specifications for WTI type crude oil which is deliverable against NYMEX Light Sweet Crude Oil futures contract in Cushing, Oklahoma. Enterprise Products Partners LP has announced that the five additional test specifications will become applicable to Enterprise Products Partners LP's common stream specifications for WTI type crude oil deliveries in Cushing, effective with deliveries starting with the January 2019 contract month and beyond.

These additional test parameters are part of CME Group’s ongoing contract maintenance of NYMEX Light Sweet Crude Oil futures contract to ensure the contract specifications mirror the underlying cash market, so the contract continues to be an effective and liquid hedging instrument for market participants.

Further, CME Group is adopting the five additional quality specifications based on consultation with the oil industry and the Crude Oil Quality Association (COQA), an industry group that represents refiners, midstream terminal operators, pipelines and oil producers.

The COQA was established in 1994 and provides a forum for companies to analyze and make recommendations related to crude oil quality issues to ensure the integrity and consistency of the quality characteristics of crude oil streams. COQA and its industry members have recommended the adoption of the five additional quality tests to enhance the quality assurance and stability of the WTI domestic sweet crude oil stream which is deliverable against NYMEX Light Sweet Crude Oil futures.

With the rise in U.S. crude oil production, there are new light sweet crude oil streams that are available for blending into the WTI crude oil stream, and consequently, the five additional quality tests will provide further assurance to refiners and end users that the quality and stability of the WTI domestic crude oil stream is maintained.

Read the Enterprise Products Partners LP press release related to the WTI specification change.

3. What are the market implications of the change to the quality specifications?

CME Group is implementing these amendments commencing with the January 2019 contract month to ensure a seamless adoption of the five new test parameters in the marketplace. We believe the implementation of the additional test parameters will have little, or no, impact on the contract value for existing open interest positions for contract months effective starting in January 2019 and beyond.

According to the quality test results of the COQA monitoring program, the quality of WTI domestic sweet crude oil in Cushing is currently substantially in compliance with the new test specifications, and has complied with these standards on average for the last six months, as well as over the past one-year and five-year periods.[1] Based on this quality test data, the adoption of the five additional test parameters has already been implemented in the crude oil market and the additional tests represent no material change to the quality of WTI type crude oil delivered in Cushing. In fact, several terminals in Cushing have already implemented these specifications as part of their quality assurance programs.

COQA recently initiated a third-party comprehensive testing program in Cushing to monitor and publicly disseminate WTI quality data that includes the new test parameters, based on random samples of domestic sweet crude oil in Cushing, Oklahoma. These test results are posted online to provide transparency and quality data that can be analyzed by commercial participants, financial companies and trading entities. The quality data that is presented by this COQA-sponsored monitoring program provides critical and timely information on crude oil quality, which will enhance the price discovery mechanism of NYMEX Light Sweet Crude Oil futures.

View the quality test data.

4. What will be the impact on deliveries in Cushing against the Light Sweet Crude Oil futures?

The existing contract rules and procedures that govern physical delivery in Cushing against Light Sweet Crude Oil futures will remain unchanged.

The terminal operators in Cushing will incorporate the new specifications into their quality assurance testing programs to ensure compliance with the new test parameters.  Enterprise Products Partners LP has announced that the five additional test specifications will be applicable to Enterprise Products Partners LP’s common stream specifications for Cushing deliveries, starting with deliveries against the January 2019 contract month and beyond.

In addition, other terminal operators in Cushing have already adopted the five additional test parameters as part of their quality assurance programs. Deliveries against NYMEX Light Sweet Crude Oil futures will continue to be governed by the standard operating procedures that are utilized by the terminal operators to ensure full compliance with the five additional quality specifications.

5. What are the implications for CME Group?

CME Group is amending its contract specifications in response to changes announced by Enterprise Products Partners LP (Enterprise) that impact the WTI type sweet stream specifications starting with deliveries in January 2019 and beyond in Cushing, Oklahoma. We assure you our contract specifications will conform to the cash market industry standards established by Enterprise Products Partners LP for the common stream specifications for WTI type crude oil which is deliverable against NYMEX Light Sweet Crude Oil futures contract in Cushing, Oklahoma.

These additional test parameters are part of CME Group’s ongoing contract maintenance of the Light Sweet Crude Oil futures contract to ensure the contract continues to be an effective hedging instrument for market participants.

CME Group is committed to working closely with our customers on any issues related to the implementation of the five additional test parameters. We are implementing these amendments commencing with the January 2019 contract month and beyond to ensure a seamless adoption of the five new test parameters in the marketplace.

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