The world’s two biggest energy exchanges have taken their fierce rivalry to Houston, Texas in pursuit of business linked to the millions of barrels of shale oil arriving in the city every day. Last year, exchange operators CME Group and Intercontinental Exchange introduced dueling futures contracts that track the price of West Texas Intermediate crude as delivered at the coastal city. The battle between the contracts – dubbed WTI Houston and Permian WTI – is a reflection of Houston ‘s growing status as an energy trading hotspot, as US oil production breaks records, Texas refineries add capacity and exports of crude soar.
At the moment, oil markets in the Gulf coast region lack widely traded derivatives contracts, which is a potential problem for companies trying to hedge risks. Contracts culminating in physical delivery at Houston would be a purpose-built tool which reflect the city’s emergence as a gateway between domestic and international markets, exchange executives say. At stake is the chance to own the next major oil contract that some believe could be a major money-spinner for the two exchanges. CME of Chicago and ICE of Atlanta have earned billions of dollars in revenues since establishing the world’s two main oil benchmarks – WTI and North Sea Brent, respectively three decades ago.
“This is not our average contract launch,” says Jeff Barbuto, global head of oil marketing at ICE. “US barrels are going to become more and more relevant to global oil flows.”
Exchanges owned by ICE and CME have competed in crude oil futures since the 1980s. ICE’s Brent crude benchmark is based on North Sea supply. CME’s light, sweet WTI benchmark is delivered to the storage hub of Cushing, Oklahoma – a small town about 500 miles north of Houston.
At times, the price of oil at Houston disconnects from prices in the North Sea, Cushing or both, suggesting the new contracts could be useful to companies selling oil there. Volumes have picked up in recent weeks.