The last decade in the global crude oil markets has been nothing short of transformative, with new market demands bringing new challenges. For example, market participants have searched for an exchange-cleared mechanism to further link the most liquid crude oil benchmark in the world, WTI futures, to waterborne markets.
The WTI Houston Futures Dock Allocation delivery process allows firms to load a full cargo of light sweet crude oil purchased under the HCL futures contract onto a tanker ship at the Enterprise Houston Ship Channel. This process allows firms to take delivery on the water at a known cost and standardizes the delivery mechanism for exchange-cleared futures.
But how exactly does the dock allocation mechanism work?
Enterprise Product Partners will provide loading windows at its Enterprise Houston Ship Channel terminal, which will be randomly allocated by CME Clearing. In order to be eligible for this allocation process, participants must be onboarded by NYMEX through their clearing member. The onboarding process requires participants to be familiar with the applicable NYMEX rules, certificate terms, and conditions. Participants must also have the capacity for arranging redelivery of crude oil by vessel at Enterprise Houston Ship Channel.
Once onboarded, participants may express interest for one or more windows for any or all of the available 10-day loading periods, which are also called decades. Although windows are randomly assigned, firms can prioritize preference for loading windows. CME Clearing will schedule and conduct these allocation runs at 12 p.m. Eastern Time 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.
Firms who receive an allocated loading window have the option to use it as a delivery point through the WTI Houston (HCL) futures contract to ship 650,000 to 850,000 barrels of HCL-quality Crude oil. Alternatively, a firm may also sell the certificate off-exchange and transfer ownership of the loading window, or let the certificate expire unused. Please note that firms that expire a certificate unused must pay the loading fee multiplied by the minimum number of barrels in the offered range.
The WTI Houston (HCL) futures is commonly spread against the WTI crude oil (CL) futures contract to manage risk, utilize margin offsets, or capitalize on potential opportunities. WTI Houston (HCL) futures can be traded either electronically via CME Globex or submitted as a block transaction through CME Clearport.
As the Gulf Coast continues to mature and increase in importance for the global crude market, market participants need transparency in export prices. WTI Houston Futures Dock Allocation delivery process, from CME Group, bridges the gap between domestic and international crude oil trading – bringing efficiency and transparency to the energy markets.