Ice to launch Houston futures contract: Update

Adds analysis, background on past efforts.

Intercontinental Exchange (Ice) said it will launch a physically delivered Permian West Texas Intermediate (WTI) oil futures contract, deliverable in Houston, Texas, this quarter.

The Ice Permian WTI futures contract will provide price discovery, settlement and delivery at Magellan Midstream Partners' terminal in East Houston, Ice said. The contract reflects the Houston-area's growing importance for US crude exports, Ice said, which have surged since the lifting of a ban on US oil exports in December 2015. US oil exports hit a record monthly high in May of 2mn b/d, with China as the top destination, according to the latest Census Bureau trade data.

The idea of an outright price for crude at the Texas coast has been discussed for several years and proposed to the market in the past, but it failed to gain traction. The combination of the long-running Nymex crude futures contract at Cushing, Oklahoma, combined with secondary benchmarks at Gulf coast delivery points, have largely provided the market with needed risk management tools and liquidity.

To get traders to abandon the existing contracts an exchange would have to offer a considerable incentive, such as advantageous cost structures or discounted fees, to attract customers.

Ice has discussed the Permian WTI futures contract with various market participants in the past year. In April Ice said it planned to launch the Permian WTI futures contracts in May, according to a notice it sent to the market. It described the contract as "a physically settled WTI crude future that will be delivered into the Magellan East Houston terminal."

Despite announcing the contract today, Ice said the WTI Houston contract was not delayed as "each contract was launched when they were ready."

Ice said the new flat price futures contract is designed to serve hedging and trading opportunities in the growing market. The contract is also prompted by the growth in shale oil production in the Permian basin, which is estimated at 2.8mn b/d, and increased US exports amid growing Asian demand for light sweet crude oil, the exchange said.

Magellan said today the ability to trade storage futures contracts at its East Houston terminal will also become available through Ice this year, replacing an existing bi-lateral auction program.

Argus in February 2015 launched an assessment for WTI delivered to Houston, set by a volume-weighted average of all trades done during the day at Magellan's East Houston terminal.