US terminalling firms Magellan Midstream Partners and Enterprise Products Partners have joined forces with US exchange technology company Intercontinental Exchange (ICE) to establish a new futures contract.
The Midland WTI American Gulf Coast contract, for the physical delivery of crude oil in the Houston, Texas area, was set up in response to demand for a Houston-based index with greater scale, flow assurance and price transparency. Subject to regulatory approval, the companies plan to launch the contract by early 2022. Magellan and Enterprise will cease provisions for delivery services under current futures contracts once the Midland WTI American Gulf Coast contract is approved.
The futures contract will use ICE’s industry-recognised, state-of-the-art trading platform. Its quality specifications will be consistent with West Texas Intermediate (WTI) crude from the Permian Basin and it will have common delivery options at either the Magellan East Houston (MEH) terminal or the Enterprise Crude Houston (ECHO) terminal.
Harold Hamm, chairman of Continental Resources and founding member of the American Gulf Coast Select Best Practices Task Force Association says that when the Cushing, Oklahoma WTI price fell to -US$38, it was a ‘wake-up call’ for the industry. He set up the task force in response to develop a new US light sweet crude oil price benchmark in the Gulf Coast, rather than landlocked Cushing, and to advocate for its adoption as the main pricing point for US oil markets.
‘We think a futures contract in the most interconnected market centre in the country, with a widely accepted quality spec, which settles with guaranteed delivery of crude oil is an important new alternative for the industry. The task force has worked tirelessly to create a marker with transparency and liquidity that is waterborne for this modern era. The Midland WTI American Gulf Coast futures contract established by the alliance between ICE, Magellan and Enterprise is a huge step forward for the industry and goes a long way to accomplishing the mission on which the task force has been working,’ he says.
Brent Secrest, executive vice president and chief commercial officer of Enterprise’s general partner adds: ‘Between Magellan and Enterprise, we offer access to virtually all of the export capacity in the Houston region, redundant connectivity to all area refineries, a robust Gulf Coast storage position and interconnects to all of the relevant supply pipelines, including those owned by third parties.’