WoodMac: ICE announces futures contract based on Permian crude to Houston

7/17/2018

LONDON -- Today, the Intercontinental Exchange Inc. (ICE), an operator of global exchanges and clearing houses for the financial and commodity markets in the U.S., announced plans to launch a new Permian West Texas Intermediate (WTI) crude oil futures contract with physical delivery in Houston. The exchange, which is slated to launch during third-quarter 2018 subject to regulatory review, will provide traders with direct access to Houston prices.

Commenting on the announcement, John Coleman, Wood Mackenzie’s senior analyst North American crude oil markets, said: "A coastal pricing point for U.S. light sweet crude will be much more relevant in coming years as the U.S. crude export story continues to unfold with export markets and coastal pricing becoming more of a focus for U.S. crude producers."

As tight-oil production continues to grow, the U.S. is fast becoming a major player in the global crude market. Wood Mackenzie estimates onshore Lower 48 production to exceed 11 MMbpd by 2023, positioning the U.S. to become the world’s largest oil producer.

Respectively, U.S. exports are forecast to rise approaching 4.5 MMbpd by the early 2030s. With more than 60% of total volumes over the next decade, the Permian basin will constitute the largest percentage of U.S. crude exports.

With this U.S. production growth and increased exports, alongside demand growth in Asia for light sweet crude oil, Houston has become the central delivery point for U.S. crude. As U.S. producers and midstream operators assess their portfolios, questions about specific crude streams will arise as they assess which are most attractive to international buyers, and which export hub is best positioned to not only reach the right markets, but to handle the highest volumes.

"This new contract will allow producers to hedge production relative to coastal prices which are much more relevant for producers looking to export their crude," Coleman added. "With export volumes expected to surpass 1.5 MMbpd by 2025, substantial pipeline inter-connectivity with major crude producing regions like the Permian and the Eagle Ford, and direct connections with the current benchmark pricing hub in Cushing Oklahoma, Houston is a natural point for a coastal pricing hub."

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