The Intercontinental Exchange’s second expiry date for the new Permian Basin Midland WTI American Gulf Coast Futures showed that the use of the instruments in the heart of LNG export and pipeline natural gas territory has grown quickly.
The ICE Midland WTI American Gulf Coast futures (HOU) went to its second expiry on March 23, with 2,588 contracts going to delivery in April, almost double the 1,400 contracts which went to expiry in March.
Each futures contract is equivalent to 1,000 barrels of Permian Basin originated WTI crude oil.
Since the contract began trading on January 24, over 31,000 ICE Midland WTI AGC futures have traded, including a record volume day on March 10 of 3,065 contracts.
ICE said that open interest has grown to 4,508 contracts and goes out to January 2023.
“It’s really encouraging to see how market activity is developing around HOU and how this has continued to gather momentum despite the volatility in energy markets,” said Jeff Barbuto, Global Head of Oil Markets at ICE.
“Physical market participants are seeing the value in having access to exchange guaranteed Midland WTI quality crude on the US Gulf Coast, and they are increasingly using HOU to source those barrels,” added Barbuto.
This month, ICE extended the time that participants can conduct Exchange for Physical (EFP) transactions so that they can now be executed up until the day after expiry of the futures contract.
The EFP mechanism allows participants to exchange a HOU futures position for the equivalent number of underlying physical Midland WTI barrels.
The HOU 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.
Facilitating trading
“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,” explained ICE.
The Permian Basin in addition to its crude oil has prolific amounts of associated gas that will play a big future role as feed gas for LNG liquefaction and export, while also being exported by pipeline to Mexico.
ICE oil futures and options include the North Sea Brent crude contract and WTI Oil, while ICE has also pioneered the Murban oil grade trading in the United Arab Emirates.
The ICE Futures Abu Dhabi (IFAD) exchange has been 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 linked to that oil price.
The Dutch Title Transfer Facility (TTF) and Japan-Korea Marker (JKM) for spot LNG cargoes also form part of ICE’s global natural gas complex alongside the UK National Balancing Point, the US Henry Hub, the West India Marker (WIM) LNG (Platts) and the Spark LNG Freight Futures contracts.
