Q4 2020 Energy Report

  • 21 Oct 2020
  • By CME Group
  • Topics: Energy

MARKET INSIGHTS

Henry Hub attracts global interest

A combination of economic factors around the pandemic and uncertainty around the severity of winter in the Northern Hemisphere has contributed to significant price volatility in the natural gas markets. The growth of Henry Hub futures liquidity during both European and Asian trading hours more another evidence for its relevance as a global benchmark.

Henry Hub futures

  • Make up 82% of Global Gas futures trading*
  • ADV during extended trading hours has grown 17% in 2020

Source: CME Group

Henry Hub options 

  • In 2020 YTD, market share is 73%, up from 68% in 2019 YTD*
  • Record electronic volume in 2020 YTD of 60K contacts per day
  • Growth driven by RFQ strategies – 56% of all screen volume in 2020
  • Open interest of 3.4M contracts is the highest since 2015

Source: CME Group
*Source: ZE Power


Is oil-indexation still relevant for pricing liquefied natural gas?

Oil-indexation has been subject to criticism due to its structural flaws, which have prohibited a full-commoditization of LNG.

The COVID-19 pandemic and its drastic impact on energy prices seems to have exacerbated those flaws and magnified market inefficiencies, revealing indexing LNG to Brent can be costly and is not a perfect hedge.

The impact of the pandemic has provided further evidence of how this pricing framework has become even more obsolete and an impediment to market competition and efficiency.

Source: CME Group


WTI Houston (HCL) futures dock allocation

Starting with the January 2021 contract, WTI Houston (HCL) futures will offer delivery of export quality crude directly onto a tanker via Enterprise Product Partners’ Houston Ship Channel, pending regulatory review.

The dock allocation process merges the physically delivered futures market with the export market.


Renewable fuels demand stimulates hedging opportunities

Europe’s energy markets are entering a period of significant change with regulation driving higher usage of lower carbon feedstocks. Waste oil-based products are actively being traded as companies gear up to comply with more stringent renewable energy targets.

Launched in August, NYMEX Used Cooking Oil (UCO) and Used Cooking Oil Methyl Ester (UCOME) futures are available and trading to support the growing need.

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