WTI Extending Its Reach as a Global Benchmark

  • 23 Jan 2020
  • By Daniel Brusstar
  • Topics: Energy

The NYMEX Light Sweet Crude Oil (WTI) futures contract reached record high trading volume in 2018 with average daily volume (ADV) of 1.5 million lots. In 2019, WTI futures volume was robust at 1.2 million contracts per day. Open interest surged to a 12-month high of 2.2 million lots in November 2019.

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 US oil production. 

Source: EIA

Rising US exports to Europe are rivaling Brent supply

The surging US crude oil exports to Europe are nearly surpassing the supply of Brent (BFOET) in the North Sea. Cargoes of WTI are now actively traded in Rotterdam, and both Platts and Argus are publishing assessments for WTI delivered to the European market.

Source: EIA and Bloomberg

US crude oil production proves resilient

US crude oil production has risen substantially from 5.1 million barrels per day (b/d) in January 2009 to 12.3 million b/d in August 2019, according to the US Energy Information Administration (EIA). In its latest short-term energy outlook, the EIA predicts oil production to hit a new record high in 2020 of 13.3 million b/d.1

US domestic crude oil grades are building liquidity

The new storage and pipeline infrastructure in the United States has had a transformational impact on the domestic crude oil grades market, as the US market focuses on export opportunities.  These changes have sparked a surge in trading volume in US 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 35% to 7,000 lots per day in 2018 compared to 2017.  As of October 2019, the ADV for the year has been nearly 6,000 lots per day. Further, average open interest in the domestic crude oil grades futures contracts reached a record high of 500,000 lots in June 2018.  For 2019, average open interest has held at 450,000 contracts through October.

Source: EIA

Notable open interest (OI) records in the US domestic grades complex:

  • Record OI of 172,500 lots in the WTI Houston (Argus) vs. WTI Trade Month futures contract (code HTT) in November 2019
  • Record OI of 240,000 lots in June 2018 in the WTI Midland (Argus) vs. WTI Trade Month futures contract (code WTT) and the WTI Midland (Argus) vs. WTI Calendar Month futures (code FF)

A look ahead

The impressive oil export growth and rising US production will be the key drivers of expansion that will continue to propel the WTI futures contract and the US domestic grades complex during 2020 in terms of volume and open interest.  

It is notable that the growth in exports has been transformative for the US crude oil market. New infrastructure has been constructed in the US Gulf Coast to process the growing export volumes, and these upgrades have transformed the US into the marginal supplier of oil to the world. These trends have been re-enforced in 2019, and the WTI futures contract will continue to enjoy a renaissance in the global marketplace.

Sources

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

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