nymeX may tighten wti rules
The New York Mercantile Exchange may tighten specifications on the West Texas Intermediate oil contract, the U.S. benchmark, because refiners say existing rules fail to eliminate variability that can cut product yields.
The exchange supports a proposal from an industry group called the Crude Oil Quality Association to control the makeup of the light, sweet contract through added standards, New York-based Daniel Brusstar, director of energy research and product development at CME Group Inc., parent company of NYMEX, said Tuesday. The exchange is “hopeful” a quality assurance program will start at Cushing, Okla., the delivery point for the contract, in the second half of 2011, he said.
As new Canadian and U.S. production floods trading hubs, characteristics that have defined domestic blended grades for decades are changing. Blenders capturing a profit by mixing cheaper grades into more expensive oils, along with an increase in storage tanks and pipeline links, are adding to deviations in WTI-tied blends, members of the quality group said. “What people have seen in WTI is the variations have started to grow more than they are comfortable with,” said Randy Segato, a crude quality specialist for Calgary-based Suncor Energy Inc.
“There are many marketers who have taken advantage of blending behind the scenes.”
Some terminal operators have started more stringent testing. Plains All American Pipeline LP has implemented additional standards for crude batches at its Cushing terminal, the company said. Enbridge Energy Partners LP said it plans to “increase the scope” of testing at its Cushing storage tanks.
Settlement of WTI futures, the world’s largest-volume contract trading on a physical commodity, and a global standard since it was introduced in 1983, can include six domestic crudes delivered into any terminal that is connected to Enterprise Products Partners LP or Enbridge Energy Partners LP’s Cushing terminals, according to the NYMEX. Blending foreign crude into those oils is prohibited.