Global Stock Markets
Surging shale oil production in Texas and North Dakota is being felt on
trading desks in Chicago, Houston and New York, where a brisk business
in West Texas Intermediate crude futures is far outpacing contracts for
London-based Brent crude.
As the United States approaches a record 10.04 million barrels of daily production, trading volumes of so-called “WTI” futures exceeded volumes of Brent crude in 2017 by the largest margin in at least seven years.
A decade ago, falling domestic production and a U.S. ban on exports meant that WTI served mostly as a proxy for U.S. inventory levels.
Two changes drove the resurgence of the U.S. benchmark. One was the boom in shale production, which spawned a multitude of small producers that sought to hedge profits by trading futures contracts. Then two years ago, the United States ended its 40-year ban on crude exports, making WTI more useful to global traders and shippers.
U.S. exports averaged 1.1 million barrels a day through November 2017, rising to an average 1.6 million bpd in the final three months. That compares to just 590,000 bpd in 2016.
As U.S. production and exports grow, global firms that increasingly buy U.S. oil are offsetting their exposure by trading in U.S. financial markets. That also gives U.S. shale producers more opportunity to lock in profits on their own production.
For ICE and CME, energy represents the second-biggest source of revenue, trailing only stocks and interest rate trading, respectively. ICE is based in Atlanta, but is known for its European contracts after it bought London’s International Petroleum Exchange and its Brent futures contract in 2001.
About 310 million U.S. crude futures contracts - worth about $16 trillion in oil - changed hands on CME’s New York Mercantile Exchange (NYMEX) in 2017, far more than the about 242 million contracts in Intercontinental Exchange’s Brent crude futures.
The increasing liquidity in U.S. oil futures stems partly from the surge in hedging by domestic shale producers but also from growing overseas interest, which pushed outstanding contracts to new records in 2017.
Average daily volumes in WTI futures from outside the U.S. jumped nearly 40 percent in 2017 over 2016, according to CME Group data. Foreign participation in WTI now represents about 30 percent of CME’s average daily volume.
A key reason for the Middle East’s and Asia’s failure to create an oil futures benchmark is that
financial commodity trading is not well established in either region.
In December 2017, the NYMEX introduced a new contract aimed at the growing market of Asian buyers importing U.S. crude, such as China, the second biggest importer in 2017. The contract prices the spread between WTI and Middle-East benchmark Dubai, leaving the United States, with its established commodity markets, operating as “the Wal-Mart of the oil market.
As the United States approaches a record 10.04 million barrels of daily production, trading volumes of so-called “WTI” futures exceeded volumes of Brent crude in 2017 by the largest margin in at least seven years.
A decade ago, falling domestic production and a U.S. ban on exports meant that WTI served mostly as a proxy for U.S. inventory levels.
Two changes drove the resurgence of the U.S. benchmark. One was the boom in shale production, which spawned a multitude of small producers that sought to hedge profits by trading futures contracts. Then two years ago, the United States ended its 40-year ban on crude exports, making WTI more useful to global traders and shippers.
U.S. exports averaged 1.1 million barrels a day through November 2017, rising to an average 1.6 million bpd in the final three months. That compares to just 590,000 bpd in 2016.
As U.S. production and exports grow, global firms that increasingly buy U.S. oil are offsetting their exposure by trading in U.S. financial markets. That also gives U.S. shale producers more opportunity to lock in profits on their own production.
For ICE and CME, energy represents the second-biggest source of revenue, trailing only stocks and interest rate trading, respectively. ICE is based in Atlanta, but is known for its European contracts after it bought London’s International Petroleum Exchange and its Brent futures contract in 2001.
About 310 million U.S. crude futures contracts - worth about $16 trillion in oil - changed hands on CME’s New York Mercantile Exchange (NYMEX) in 2017, far more than the about 242 million contracts in Intercontinental Exchange’s Brent crude futures.
The increasing liquidity in U.S. oil futures stems partly from the surge in hedging by domestic shale producers but also from growing overseas interest, which pushed outstanding contracts to new records in 2017.
Average daily volumes in WTI futures from outside the U.S. jumped nearly 40 percent in 2017 over 2016, according to CME Group data. Foreign participation in WTI now represents about 30 percent of CME’s average daily volume.
A key reason for the Middle East’s and Asia’s failure to create an oil futures benchmark is that
financial commodity trading is not well established in either region.
In December 2017, the NYMEX introduced a new contract aimed at the growing market of Asian buyers importing U.S. crude, such as China, the second biggest importer in 2017. The contract prices the spread between WTI and Middle-East benchmark Dubai, leaving the United States, with its established commodity markets, operating as “the Wal-Mart of the oil market.
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