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.
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 TranscanadaMarketlink 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.
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.
NYMEX WTI Crude Oil Futures Overview
NYMEX WTI Crude Oil futures is the world’s most liquid crude oil benchmark, providing access to global crude oil pricing with the most diverse set of futures and options contracts.
With WTI competing directly in the global energy markets as the price discovery leader, open interest continues to grow as customers hedge their oil market risk.
Volumes on NYMEX WTI Crude Oil futures (CL) and Crude Oil options (LO) have been strong, in part reflecting the higher levels of volatility in both crude oil and refined products.
U.S. Gulf Coast
The infrastructure investment in the U.S. Gulf Coast has transformed WTI into a waterborne crude, with extensive export capacity. The U.S. Gulf Coast comprises approximately 55% of the U.S. crude oil storage capacity, while Cushing comprises 13%.
The Houston market has become export-focused, with a terminal network with storage capacity of 65 million barrels and an additional 20 million barrels of storage capacity projected to come into service in 2017.
The WTI-Brent spread has become a true indicator of value for U.S. crude exporters. With the spread trading between a $1 and $2 per barrel discount to Brent, increased volumes of WTI-linked crude oils may flow to countries outside of the U.S. and Canada.
Introduction to European Crude Oil
The North Sea in the 1970s and 1980s offered stable government, good access to markets and good financing opportunities. For these reasons, the crude oil benchmark, Brent crude, developed in this region.
Brent crude was adopted by producers in Russia, North and West Africa, and in Asia in the early 2000s. The physical market is dominated by the trading in a forward market that enables users to trade monthly oil cargoes for three to four months ahead.
Forward trades are either full-size North Sea crude cargoes of 600,000 barrels or smaller, 100,000 barrel partials that are cash-settled unless the same buyer and seller trade six partials in the same delivery month.
WTI in Asia region
The WTI Crude Oil benchmark continues to increase its presence in a growing role throughout the Asia region. Crude oil can be sold via spot or term sale. It has a tendency to be sold on a fixed price basis. The most well-known oil benchmarks are WTI, Brent and Dubai. The WTI benchmark price is based on a blended series of crude oil streams produced in the U.S. mid-continent. It is physically delivered into Cushing, Oklahoma from the U.S. Gulf Coast and mid-continent, via rail and inter-connected pipelines. Asian clients can use WTI Crude Oil futures to hedge their downstream production, as this benchmark futures contract provides robust liquidity and high price correlation to most crude oil streams.