Intercontinental Exchange, the leading global provider of trading platforms and clearing, is pushing ahead with development of derivatives and products to allow the hedging of risk in the natural gas, LNG and oil complexes with the latest being a successful Permian Basin product launch.
The company said that its ICE Midland WTI American Gulf Coast futures went to its first expiry on February 23, with 1,395 contracts going to expiry, equivalent to 1.4 million barrels, for delivery in March.
The initial success of ICE’s WTI American Gulf Coast oil product came after record activity during 2021 in two key LNG trading derivatives, the European benchmark Dutch Title Transfer Facility (TTF) and the Japan-Korea Marker for North Asian spot cargoes.
Since the Midland WTI contract began trading on January 24, over 12,000 ICE Midland WTI AGC futures have traded, equivalent to 12 million barrels of Permian Basin-originated WTI crude oil.
Open interest is 3,576 contracts and goes out to January 2023.
Analysts note that contract is named after the Texas city of Midland which sits on the Permian Basin, a centre of oil drilling and future abundant supplies of associated natural gas for the expanding LNG sector on the Gulf Coast of Texas and Louisiana.
However, the contract code itself carries the initials (HOU) of the other Texan energy city, Houston.
Cargoes offered
“It’s early days still but HOU is off to a great start,” said Jeff Barbuto, Global Head of Oil Markets at ICE.
“We’ve seen some encouraging developments in the physical space, with cargoes being offered based on HOU pricing, EFPs taking Midland WTI to the water, and general market engagement in exploring different ways to use HOU for pricing exposure, exporting, and managing risk around Midland WTI,” explained Barbuto.
The Exchange for Physical (EFP) mechanism allows participants to exchange a HOU futures position for the equivalent number of underlying physical Midland WTI barrels.
The contract is deliverable at both Magellan Midstream Partners’ Magellan East Houston (MEH) terminal and Enterprise Products Partners L.P.’s Enterprise Crude Houston (ECHO) terminal.
ICE explained that to further facilitate trading between the MEH and ECHO terminals to create one large liquidity pool, Magellan and Enterprise will transfer Midland WTI barrels between the terminals for no charge during the first year if the barrels are not delivered to the buyer’s preferred terminal, and at 10 cents per barrel for all other WTI transfers meeting HOU quality specifications.
In addition to North Sea Brent crude and WTI Oil, ICE has also pioneered the Murban oil grade trading in the United Arab Emirates,
The ICE Futures Abu Dhabi (IFAD) exchange is underpinned by the Murban oil market since it was launched at the end of March 2021.
Some long-term LNG supply contracts for nations like Japan are also linked to the oil price.
TTF and JKM futures and options form part of ICE’s global natural gas complex alongside the UK National Balancing Point, Henry Hub, the West India Marker (WIM) LNG (Platts) and the Spark LNG Freight Futures contracts.
