WTI Houston (HCL) Dock Allocation FAQ

  • 24 Sep 2020
  • By CME Group
  • Topics: Energy

1. What is the WTI Houston Futures (Code HCL) Dock Allocation Run process?

The WTI Houston Futures (HCL) Dock Allocation Run process allows participants to load a full cargo of light sweet crude oil (650,000 to 850,000 barrels) purchased under a WTI Houston (HCL) futures contract onto a cargo ship at the Enterprise Houston Ship Channel. The dock delivery is an optional and off Exchange transaction that is governed by Enterprise’s Terminal Services Agreement (“TSA”).  On a monthly basis, Enterprise Product Partners may provide loading windows, which the Exchange will randomly allocate (in accordance with expressed preferences) at a known and fixed terminal services fee to some Allocation Run participants.

2. Is the allocation process completely random?

The allocation process is not completely random. This is because participants may express interest for one or more windows for any or all of the available 10-day loading periods, termed “decades.”

3. Does participation in an allocation run guarantee a loading window allocation?

No. Some participants may not receive an allocation. This could occur, for example, because the number of participants is greater than the number of offered windows.

4. How will allocations be documented?

Participants that receive an allocated window will receive a Certificate, giving them the right to use the loading window as a redelivery option at a known and fixed terminal services fee. Participants allocated a window may also sell the Certificate off-exchange and transfer ownership of the loading window.

5. Who is eligible to participate in the Dock Allocation process?

Participants must be onboarded by NYMEX through their clearing member for participation in an Allocation Run. The onboarding process requires participants to be familiar with the applicable NYMEX rules and the Certificate terms and conditions. Participants must also have the capacity for arranging redelivery of crude oil by vessel at Enterprise Houston Ship Channel. 

6. How are “decades” defined?

A decade will generally be a ten (10) consecutive day period comprised of (a) the 11th through the 20th calendar days of the delivery month (2nd Decade); (b) all remaining calendar days after the 20th calendar day of the delivery month (3rd Decade); or (c) the 1st through the 10th calendar days of the calendar month following the delivery month (1st Decade).

7. How are loading window Certificate’s allocated?

Participants who have a strong preference for one decade over another should classify the higher priority decade as the “first-priority.” Note that Certificates will be allocated in chronological order. Participants may choose both a first-priority and second-priority decade(s), while limiting the number of windows allocated to a maximum quantity.

Example –

Participant A wants to fill no more than one loading window for a January 2020 HCL futures contract. The participant prefers a 2nd Decade window but will accept a 3rd Decade window.

Participant A informs the Exchange through their clearing member that their first-priority is for one 2nd Decade window and their second-priority is for one 3rd Decade window.  In this example, Firm A wants only one window.

If Participant A is not awarded a Certificate in the first-priority run, they are eligible for a 3rd Decade window in the second-priority run.

If Participant A is awarded a Certificate in the first-priority run, they will not be included in the second-priority run for a 3rd Decade window.

Participant A will not be allocated more than one window in any scenario and has no chance of receiving a 1st Decade window. There is no guarantee that Participant A will receive any window in the Allocation.

8. Where do I find the Onboarding Package for the Dock Allocation process?

9. When will allocations be run?

An allocation run will be scheduled for, and conducted at, 12 p.m. Eastern Time (“ET”) on the 15th day of the second month preceding the delivery month or the preceding business day if such day is not a business day.

10. How do participants express interest in a loading window?

Participants are required to express interest to the Exchange no later than 11:30 a.m. ET on the day of a scheduled Allocation Run through their clearing member.

11. When will a participant know the cost per barrel of a loading window?

The loading cost per barrel will be fixed and posted along with the number of available windows in each Decade approximately two business days prior to the Allocation Run.

12. How many futures do participants need to deliver against their cargo?

The process is designed for participants to redeliver and load crude oil delivered under the futures contract at ECHO for the complete cargo of 650,000 to 850,000 barrels. However, the Exchange may elect to allow participants to use off exchange/physical supply to fill part of the cargo. If permitted, a participant must secure non-futures crude oil at ECHO and ensure that the crude oil meets the quality specifications outlined in the HCL contract.

13. When do participants need to hold a futures position to use for delivery via a dock window?

Participants are required to hold futures contracts only on the futures contract’s expiration date in order to use the allocated dock window(s) for redelivery.

14. What else do participants have to do to use the Certificate for loading a full cargo during an allocated Decade?

Prior to loading participants must enter into a Terminal Services Agreement with Enterprise and register with Enterprise through its EStream registration system. 

15. How can a participant trade WTI Houston futures (HCL)?

Participants may execute HCL Futures contracts electronically on CME Globex or, if eligible, as a block trade pursuant to the requirements of NYMEX Rule 526 (“Block Trades”).  Block trades must be submitted to the Exchange via CME ClearPort.

16. What are a participant’s options if allocated a Certificate for a loading window?

Participants that are allocated a loading window have three options:

  1. Use the Certificate for loading a full cargo of light sweet crude oil in the specified Decade  (such crude will be initially delivered at ECHO against expired HCL futures contracts) with further delivery off exchange at the dock in delivered quantities as required for dock deliveries of futures versus off exchange barrels.
  2. Sell the Certificate off-exchange and transfer the loading window through an assignment of rights
  3. Allow the unused Certificate to expire. Note that participants that allow an unused Certificate to expire must pay the loading fee multiplied by the minimum number of barrels in the offered range.

17. What happens if participants buy a loading window off-exchange (“OTC”)?

Only participants that have completed the onboarding process for Dock Allocation are eligible to purchase a Certificate OTC from a Certificate holder. Please contact NYMEX at clearinghousedelivteam@cmegroup.com to request a copy of the Allocation onboarding package.

18. How does a participant submit the number of barrels within the acceptable range (650K-850K)?

Each Certificate will include an expiration date that is approximately 2 business days prior to the 15th of the month prior to delivery. In order to redeem the Certificate, the holder must notify its clearing member in writing of the size of the cargo within the prescribed range.

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