WTI Houston could emerge as global benchmark
OREANDA-NEWS. WTI Houston is emerging as a crude price marker that could become a reliable global benchmark following the lifting of the US export ban, and amid ongoing concerns about North Sea Dated, the Argus Crude Forum in London heard today..
The rise in spot trade of WTI Houston is driven by its reliable quality, sufficient volumes, participant diversity, suitable infrastructure, proximity to deep reserves and flexible production. These factors favour its emergence as a benchmark in its own right, the forum heard.
Spot trade in WTI Houston began in late 2014, and since then traded volumes have risen rapidly. An average of over 120,000 b/d changed hands for delivery in December 2015-February 2016, the number of market participants has increased, and the CME and Ice exchanges are now both listing contracts priced on it. Argus launched a volume weighted average price in January last year, and is considering launching a price for sour crude WCS Houston this year.
US crude exports have got off to a slow start, with the widening WTI/Brent spread eliminating arbitrage opportunities to sell cargoes further afield, and Canada taking much of the approximately 500,000 b/d that is currently exported.
But the lifting of the ban has had some immediate effects, including raising the profile of WTI as a global benchmark, and incentivising the development of new export infrastructure.
Houston has become a hub for light sweet crude delivered by pipeline from Cushing and the Permian region, where production has proven robust in the face of low prices. The city's infrastructure as an export hub is still limited but its ongoing development is a key element in the evolution of WTI Houston as crude price marker.
Quality is another factor. WTI Cushing, the flagship US light sweet crude futures contract, has been undermined by buyers' quality concerns.
Much of the physical trade in light sweet crude at the market hub in Cushing, Oklahoma, involves other streams, including Bakken from the upper midcontinent and Canadian heavy crude with high metals content. The resulting quality varies much more than the relatively stable field grade WTI that reaches Houston by pipeline from west Texas.
The US decision to lift restrictions on crude exports last year has led to several cargoes going to Europe and Latin America. None of the cargoes have priced against the WTI Houston marker yet.
But Houston is the closest liquids market hub to all of the ports involved so far, including Eagle Ford terminals at Corpus Christi and docks near Nederland. As crude benchmarks continue to evolve, and North Sea production declines, WTI Houston's importance as a reliable global price marker looks set to grow, the forum heard.