WTI Entering a Renaissance as a Global Benchmark

  • 17 Jul 2018
  • By Dan Brusstar

The NYMEX Light Sweet Crude Oil (WTI) futures contract set new record highs in both volume and open interest in 2018.  Open interest surged to a record 2.7 million lots in May 2018, while average trading volume was 1.34 million contracts per day in the first six months of 2018, up 14% over the same period in 2017.

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 more than triples in June 2018 compared to one year ago, to average 2.4 million b/d. 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 10.9[1]  million b/d in June 2018.  In its latest short-term energy outlook, the U.S. Energy Information Administration (EIA) predicts oil production to hit a new record high in 2019 of 11.8 million b/d.

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 a surge 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 a  phenomenal 184% in the first six months of 2018 compared to the same period in 2017. As of June 2018, the ADV was over 10,000 lots per day. Further, open interest in the domestic grades contracts continues to climb to new record heights, and reached 550,000 lots in June 2018.

Notable open interest (OI) records in 2018 in the U.S. domestic grades complex are:

  • Record OI of 184,018 lots in the WTI Midland (Argus) vs. WTI Trade Month futures contract (code WTT)
  • Record OI of 133,617 lots in the WTI Houston (Argus) vs. WTI Trade Month futures contract (code HTT)
  • Record OI of 26,539 lots in the WCS (Net Energy) Monthly Index futures contract (code WCW)

Looking Ahead

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 to reach new records on 2018 in terms of volume and open interest.

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 enjoy a renaissance in the global marketplace.

1 Energy Information Administration: https://www.eia.gov/outlooks/steo/

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