Discover WTI: A Global Benchmark

CME Group2

08/30/17

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WTI: A Global Benchmark

 

West Texas Intermediate (WTI) is a U.S. blend of several streams of domestic light sweet crude oil. The delivery point is located in Cushing, Oklahoma which is home to 90 million barrels of storage capacity. It is a crucial hub where extensive infrastructure exists and serves as a vibrant trading hub for refiners and suppliers.1

 

The Importance of Crude Markets

 

The rise in importance of the U.S. crude market comes at a challenging time for other crude oil markets globally.  The catalyst for this transformation was the sharp rise in U.S. oil production, and the lifting of the export ban on U.S. crude that occurred at the end of 2015. 

Infrastructure changes in the United States have become so prevalent that they are likely to have a transformational impact on the region for years to come. Investment in the U.S. Gulf Coast has transformed WTI into a waterborne crude, with extensive export capacity. The Seaway Pipeline links Cushing, Oklahoma to the Houston, Texas export market, with 850,000 barrels per day capacity. The Transcanada Marketlink Pipeline provides additional capacity of 700,000 barrels per day from Cushing to Houston.  Further, the Magellan, BridgeTex and Longhorn Pipelines carry up to 475,000 barrels per day from Midland, Texas to Houston. The Houston market has become export-focused, with a terminal network with extensive storage capacity of 65 million barrels, and an additional 20 million barrels of storage capacity projected to come into service in 2017.2

Moreover, a number of new terminals are in the process of being built along the U.S. Gulf Coast to handle the rising number of ships arriving to load crude oil destined for the international markets.

 

The Role of WTI

 

As U.S. production has risen substantially, the role that WTI is likely to play in terms of being the marginal supplier of oil is going to increase significantly and the global markets are likely to adopt WTI pricing into their crude oil trading. Lifting the U.S. export ban has significantly impacted global oil flows and will lead to greater market efficiencies as companies look to gain arbitrage opportunities with the improved logistics of free trade.  As a result, WTI is able to compete directly in the global marketplace and has become the price discovery leader in the crude oil market.

 

Summary

 

CME Group offers Crude Oil futures and options products to allow producers, refiners, consumers, importers and exporters to hedge their risk. WTI Crude Oil futures is a physically-delivered contract based on 1,000 barrels. It is priced in U.S dollars per barrel and traded electronically on CME Globex and cleared via CME ClearPort. 

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1https://en.wikipedia.org/wiki/West_Texas_Intermediate

2https://www.bloomberg.com/news/articles/2017-06-26/welcome-to-the-booming-texas-port-at-center-of-u-s-oil-exports