Room at the Top - NYMEX Leads the Way on WTI Futures Contracts, But There's Room for More

The U.S. crude oil market has undergone a drastic shift since the Shale Revolution. After a quarter-century of declining production and increasing dependence on imported oil, the U.S. has become the world’s leading producer. This transformation turned the U.S. into a major exporter and a critical supplier to the international market and also led to an evolution in crude oil trading. In today’s RBN blog, the first in a series, we’ll explore the history of West Texas Intermediate (WTI) futures contracts. 

Before the export market blossomed for U.S. crude oil in the late 2010s, most domestic production flowed through the important Midcontinent hub of Cushing, OK (see Give and Take). That location might seem odd on the surface for a global energy hub — the closest major cities are Tulsa and Oklahoma City, and the nearest refineries (HF Sinclair in Tulsa and Phillips 66 in Ponca City, OK) only account for about 325 Mb/d of demand. However, if you look a little deeper, you’ll see that Cushing has a rich history (see The Heart of the Matter), an astonishing 94 MMbbl of aboveground storage, and a long-standing role as a “trading post.”

(RBN’s recently updated Cushing Crude Oil Playbook provides a one-stop, comprehensive guide to the hub’s assets and details the infrastructure each company controls with maps and comparable attribute tables. Click here for more information.)

The strong physical trading liquidity at Cushing attracted paper traders, allowing market participants to hedge their physical business and bet on the market via the WTI Light Sweet Crude Oil futures contract (contract symbol: CL) on the New York Mercantile Exchange (NYMEX). This contract, which launched more than 40 years ago, became important in the domestic market and internationally. In 2008, NYMEX was acquired by the Chicago Mercantile Exchange (CME), which currently manages the CL contract. CL remains the most liquid contract for U.S.-originated crude  oil. While this contract was initially supplied with WTI directly from West Texas, it did not exclude crude oil that originated elsewhere but met the contract standards. (See Trading in the U.S.A.; more on this in the next blog in this series.)