Adds quality specifications, details starting in seventh paragraph.
The CME Group is expanding the physically delivered WTI Houston crude oil futures contract (HCL) to allow participants to receive crude directly onto a tanker at the Enterprise Hydrocarbon Terminal (EHT) on the Houston Ship Channel via a dock allocation process starting in January.
HCL, launched in November 2018, is a financial contract that also allows physical delivery of Permian-quality crude into Enterprise Products' system in the Houston, Texas, area, including at the Echo terminal, Genoa Junction and Moore Road. Participants also have the ability to take delivery at the EHT terminal, but that currently does not include dock access.
The new dock allocation process — managed by CME Clearing — will allow companies to deliver 650,000-850,000 bl of light sweet crude directly onto a tanker at EHT, or to transfer ownership of allocated load windows in the secondary market.
The HCL expansion is still pending regulatory review, according to CME Group. The exchange previously stated it would expand the contract in the second quarter of 2020 to include the ability to purchase WTI-quality parcels on an fob basis.
"As the US crude oil export market has grown, we have seen an increase in demand for direct access to waterborne markets," said Peter Keavey, global head of energy at CME. "The dock allocation process is the next phase in the evolution of WTI Houston and merges the physically-delivered futures market with the export market."
Dock allocations will be conducted two months in advance at 12:00pm ET on the 15th of each month. Companies wishing to obtain a load window through this process should express their interest to CME by 11:30am ET the same day.
Loading costs associated with allocated windows will be fixed and posted along with the number of available windows about two days before each allocation day, according to CME. The amount of load windows available will vary per month as provided by Enterprise on a contract-by-contract basis.
Participants who take delivery via dock allocation will also be subject to additional service fees as determined by Enterprise.
The new process is designed for participants trading the HCL contract, but CME will allow some participants to fill part of the cargo with similar-quality crude purchased separately in the physical market at the Echo terminal.
Eligible crude deliveries will have a 40-44°API gravity, a sulfur content no higher than 0.2pc, and nickel and vanadium contents of 3 ppm or less, according to CME. This tightens the previous quality specifications that had cited a maximum 0.275pc sulfur content and 4 ppm or less of nickel and vanadium content.
CME and Enterprise already host electronic auctions for Houston-loading cargoes, although the monthly events have won little participation amid a difficult-to-work export arbitrage in the last year.
The electronic cargo auction platform will continue to be available for interested market participants, CME told Argus.
Enterprise was not immediately available for comment.
