From the December 01, 2009 issue of Futures Magazine • Subscribe!

Saudis drop WTI benchmark

CME Group and the Intercontinental Exchange (ICE) were quick to act upon news that Saudi Arabia would drop the New York Mercantile Exchange’s (Nymex) WTI crude oil contract as a benchmark for its oil exports. CME Group announced that trading and clearing services for cash-settled trade-month swap futures on the new benchmark for Saudi oil, the Argus Sour Crude Index (ASCI), would begin on Nov. 23. ICE, which also offers a WTI contract, will offer two cash-settled futures contracts based on the ASCI that will be cleared by ICE Clear Europe. The new futures contracts are the ICE Argus Sour Crude Index future, which is an outright contract, and the ICE Argus Sour Crude Index differential future, which is the differential between the ASCI and the WTI price.

“People [are] looking for another benchmark that better represents the global market. There could be some supply-demand issues. It’s also a move away from the dollar,” says Thomas Hartmann, analyst at Altavest Worldwide Trading.

Dominick Chirichella, founder of the Energy Management Institute, doesn’t expect any major shifts in volume in the short term, but says over the long term, it could be the beginning of Nymex changing their low sulfur crude benchmark from WTI to something that’s less susceptible to wide inventory swings in a segregated part of the United States. “Nymex has been trying for years to get a more acceptable sour crude index and it’s never been totally embraced. This could be a gain for Nymex/CME Group if the financial community and the hedging community embrace futures in the OTC market on the Argus index. Nymex volume could increase as a result of this,” he says.

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