Asia is the biggest importer of U.S. oil exports. Asia overtook Canada in August 2017, and accounted for 56% of total U.S. oil exports by June 20181. Even after China stopped importing U.S. oil as a result of the Sino-US tariff negotiations, exports to the rest of Asia continued to grow.
The latest data from the U.S. Energy Information Administration showed that, as of November 2018, Asia ex-China imported 1.1 million bpd, or 48% of the 2.3 million bpd of oil exported out of the U.S. As a perspective, when the U.S. Congress lifted its 40-year ban on oil exports in January 2016, Canada was the only major recipient of its 500,000 barrels per day (bpd) of oil exports.
Total trading volume of WTI futures at CME Group has increased, from 800 million bpd in 2015 to 1,200 million bpd in 2018, and the percentage traded during non-U.S. hours has also increased amidst that overall growth. Over 25% or 200 million bpd of WTI futures are now traded outside U.S. hours.
As of December 2018, total WTI futures was about two-thirds of total Brent futures volumes traded during Asia daylight hours. As such, WTI appears to be highly relevant to Asia clients.
To compare, the ratio of WTI versus Brent traded during Asia hours was one-third as recently as July 2018. And before January 2016, the amount of WTI traded outside U.S. hours was less than 10% of CME Group's total WTI volumes.
To drive home the importance of WTI to Asia, we also looked at the total trade volumes that were carried out by traders who are based in Asia (regardless of trading hours). The percentage of total WTI volumes which were attributed to Asia-based traders had increased by about 5 percentage-points from 2017 to 20183. And this is on the back of an overall increase in total WTI volumes. The growing number of total open positions (a new record of 2.7 million open positions was set on 16 May 2018) suggests that oil companies in Asia are giving more weight to WTI as a crude benchmark for Asia.
Traders who need to hedge the price spread between U.S. light sweet crude and Middle Eastern heavy sour crude can do so with the WTI-Dubai spread futures contract listed on CME Globex.
The chart below shows WTI’s significant depth of liquidity during Asia trading hours. The tradable volume at each level of bid-ask spread during Asia hours is almost equal to that during Chicago hours in 2018. On average, a trader can execute 25 lots at the best bid-ask prices during U.S. trading hours, and 23 during Singapore trading hours. He or She may be able to execute 123 lots and 111 lots respectively within a 3 basis-point spread. A trader submitting trades for WTI during Asia hours may also see almost no slippage costs versus putting his or her orders in during Chicago trading hours.
With rising prosperity driving energy demand in the fast-growing developing economies of China, India and other emerging markets in Asia, the region is expected to account for two-thirds of the growth in global energy consumption.4 While Saudi Arabia and Russia remain the top global oil exporters, the U.S. output surge means it has become the marginal supplier of crude to the world. The surge in U.S oil production and export to Asia is likely to increase the adoption of the WTI, and potentially establishing it as a suitable crude benchmark for Asia.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author(s) and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
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