CME to offer crude storage contract at Loop

OREANDA-NEWS. The CME Group and NEO Markets will launch a physically delivered crude storage futures contract at the Louisiana Offshore Oil Port (Loop), the largest US privately owned crude terminal.

Each contract will carry the right to store 1,000 bl of crude at Loop's Clovelly, Louisiana, hub for a specific calendar month. Nymex is also renaming its Gulf Coast Sour Oil futures contract Loop Gulf Coast Sour Crude Oil. The contract is physically deliverable to Loop and will be broadened to include Poseidon, Mars and Loop Seg 17. The storage contract is expected to grow liquidity of the sour crude contract, CME said.

Loop has about 69mn bl of storage. About 60mn bl is stored in eight underground caverns and 9mn bl in 15 above-ground 600,000-bl tanks. One of the caverns is dedicated to the Mars stream.

The West Texas Intermediate (WTI) contract and physical Gulf coast Mars are in contango, incentivizing the storage of crude for sale at a higher price at a later date. But given a lesser degree of contango for medium sour in Louisiana going forward, the rewards of securing storage for future use are less certain. Still, crude has been piling up in the Cushing, Oklahoma, hub, and there could soon be more demand to store crude on the Gulf coast.

Cushing's 71mn bl of working capacity is 67pc full, according to the Energy Information Administration, and Gulf coast storage is 56pc full.

Poseidon and Mars production is rising, and the reversal of the 375,000 b/d Ho-Ho pipeline also means more crude can flow into Loop from Houston and Nederland, Texas, than before, though Ho-Ho volumes are typically light crude.

"We believe this innovative new solution will help customers manage their physical crude storage price risk, while enhancing price discovery and access to short-term storage capacity along the US Gulf coast," CME Group global head of energy products Martin Fraenkel said.

The storage rights will provide "greater transparency, ease of access, liquidity, flexibility and security of supply " for companies, NEO Markets president Robert Collins said.

NEO Markets will host monthly auctions of physical Loop sour crude oil storage contracts. The contract will begin trading at CME on 29 March.