(EnergyAsia, March 18 2015, Wednesday) — CME Group, the world’s largest derivatives market operator, said it and two US firms expect to launch a physically delivered crude oil storage futures contract on March 29 upong receiving US regulatory approval.
The Chicago-based firm said it jointly developed the pioneering contract with LOOP LLC, operator of the largest privately-owned crude oil terminal in the US, and NEO Markets Inc, a leading online marketplace for US physical oil transactions.
“This new contract will provide market participants with an innovative, exchange-traded futures contract based on crude oil storage capacity at LOOP’s Clovelly Hub in Louisiana, beginning with the May 2015 contract month,” said CME Group.
Each contract will represent the right to store 1,000 barrels of crude oil at the hub for a specific calendar month.
“The contract is expected to enhance the liquidity of the existing NYMEX Gulf Coast Sour Crude Oil futures contract, which is physically deliverable at LOOP and will be renamed LOOP Gulf Coast Sour Crude Oil futures.”
As part of the agreement, CME Group said it will broaden the specifications of the sour crude futures contract to include Poseidon, Mars and LOOP Seg 17.
NEO Markets will be hosting monthly auctions of physical LOOP Sour crude oil storage contracts on its NEO Trader platform. Following the auctions, subsequent over-the-counter transactions can be negotiated via the NEO Trader platform and NEO’s voice broker services.
Both contracts will be available for trading electronically via CME Globex as well as submission for clearing through CME ClearPort, and will be listed by and subject to the rules of NYMEX.
“As global crude oil supply and demand dynamics continue to shift, CME Group remains focused on meeting the risk management needs of our energy customers,” said Martin Fraenkel, CME Group’s managing director and global head of energy products.
“We believe this innovative new solution will help customers manage their physical crude storage price risk, while enhancing price discovery and access to short-term storage capacity along the US Gulf Coast.”
Tom Shaw, LOOP’s President, said:
“We are pleased to be providing the physical storage capability for this ground-breaking new storage futures contract. LOOP’s reliability record, unparalleled market connectivity, extensive supply of medium sour crude and significant storage capacity provide the market a unique storage opportunity on the Gulf Coast.”
LOOP LLC owns and operates a deepwater port and associated onshore terminal with significant crude oil handling and re-distribution capabilities at its Clovelly hub in Louisiana.
The 70-million-barrel hub stores crude oil from all over the world and provides ready access to many of the nation’s largest refineries. Started in 1981, the company said it has has safely received and delivered over 11 billion barrels of crude oil to US refineries for production of gasoline, diesel, home heating fuel, kerosene, asphalt and other petroleum products.
Robert Collins, Jr, NEO Markets Inc’s Co-CEO and President, said:
“By offering storage rights to a broader market through these new futures contracts, we expect to provide greater transparency, ease of access, liquidity, flexibility and security of supply for companies dependent on Gulf Coast oil deliverability.”
NEO Markets was formed in 2012 to provide oil traders, hedgers, producers, refineries and investors with comprehensive access to the global physical and financial crude oil marketplace.