Markets give backing to WTI as oil benchmark

Strong Q2 trading volumes reassert WTI's place as global pricing benchmark

West Texas Intermediary (WTI) grade crude oil trading volumes have rebounded strongly in the second quarter, diminishing chances that it could lose its place as a global benchmark for crude oil prices, the derivatives market-place CME Group said on Wednesday.

"I know during Q1 the amount of WTI futures traded was a little bit less than it had been in the last two years," says Bob Levin, managing director of energy research and product development at CME Group. "However, so far in Q2 there's been a dramatic reversal of that. March 31 was the lowest point of WTI relative to Ice [Brent crude oil futures] - it was about 147,000 trades under [Ice Brent volumes]. On May 11, it was 198,000 in the reverse - a shift of about 350,000 in Q2."

"I'm not sure we would concur that there's been a shift [from WTI to Ice]. Factually, you can't say you've seen that shift," he adds.

There have been complaints from within the crude oil market that WTI contracts fail to reflect global oil fundamentals, and that regional factors at the contract's delivery point, Cushing, US, wield too much influence on global prices.

Major producer Saudi Aramco dropped the WTI benchmark to price its oil at the beginning of the year in favour of an index of US Gulf Coast medium sour grades.

However, Levin points out that the sour crude oils are priced at a differential to WTI, while the dominance of WTI contracts in the options market suggests a widespread confidence in the grade.

"An important thing about options is, commercially speaking, it's an insurance product and 99% of [crude oil options] are in WTI. So one has to take into context there's been a strong industry endorsement of WTI," he says.

Felix Carabello, managing director for international energy and metal products at CME Group, points out that a change-over in benchmark status is a complicated thing to achieve.

"It's hard to see the WTI contract being dislodged as the global benchmark any time soon. Many OTC and physical trades are tied into WTI, so to think that one morning that's going to change, is very unlikely to happen," he says.