Consistent quality and high liquidity make Houston the center of the oil pricing universe, oil consultant Phil Verleger said today at the Argus Americas Crude Summit.
Growing trade on the Texas coast will ultimately overtake the influence of the Brent and Dubai crude benchmarks and reduce Opec's ability to steer prices, he said. But the shift in global benchmarks would not likely spur new futures contracts, he said.
Physical trade in the market has climbed with the capacity of pipelines delivering Permian, midcontinent and Canadian crude to the area. Argus-assessed WTI Houston open interest grew swiftly last year, from roughly 20mn bl to more than 100mn bl. The southerly flow of North American crude meanwhile reduced the importance of the oil storage hub at Cushing, Oklahoma, to a purely financial instrument, he said.
"Cushing has become the bitcoin of crude," Verleger said. The price point, like Ice Brent, keeps its relevance because it is one of the first markets.
"The financial community facilitates the survival of irrelevant markets," Verleger said.
Supply and quality issues would sap the leadership of the Brent benchmark, he said. Asian purchases of US Gulf coast crude would reduce the influence of the Dubai crude benchmark. Chen Bo, president of China's Unipec oil firm, earlier this week said Houston was emerging as the most active physical and pricing center.
But it would be almost impossible to steer futures to a new physical trade location, Verleger said.
"They may launch them but they are probably not going to succeed," Verleger said. "Once you get a futures contract established, trying to establish a second one is very difficult."
