Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on July 17, 2018
Houston Is a Big Energy Hub, So Why Not Price Oil Futures There?
Houston is set to get its own oil futures, a sign of the city’s growing importance as the U.S. sends more crude abroad.
Intercontinental Exchange Inc. ICE 0.66% is planning a new crude futures contract with physical delivery in Houston, the company said Tuesday. The contract will provide traders with direct access to Houston prices. The exchange is aiming to launch this quarter, subject to regulatory review.
For decades, the benchmark for U.S. oil prices has been in Cushing, Okla., because of its accessibility through major pipelines and extensive storage space. However, with the U.S. on track to become a major energy exporter, some analysts say that pricing power is shifting to the Gulf Coast, where oil gets loaded onto tankers and shipped overseas.
“Houston’s become the main trading hub,” said Jeff Barbuto, vice president of oil markets at ICE. “It’s a better representation of the economics of where U.S. crude production meets the water to be exported.”
U.S. exports of crude oil have surged since a 40-year-old ban was lifted in 2015. In June, crude exports reached a record high of 3 million barrels a day, and have since stayed at about 2 million barrels a day. Meanwhile, U.S. shale companies are producing at record levels of 10.9 million barrels a day.
Right now, those who want to trade Houston prices use futures that track Cushing prices and contracts that track the difference between the two locations. An outright Houston contract could help streamline the process for traders and companies looking to lock in prices for their crude.
“This will help our customers through the process of hedging their risk around those differentials,“ said Mark Roles, vice president of commercial crude oil at Magellan Midstream Partners LP, whose East Houston terminal will act as the settlement and delivery point for the new contract. “As more volumes hit the international market, we’re going to see a much stronger need for pricing and hedging,” he said.
Several times this year, Cushing prices were influenced by logistical issues, creating headaches for producers, said John Coleman, an analyst at energy consultancy Wood Mackenzie.
“There’s a lot of guesswork that goes into factors impacting Cushing,“ Mr. Coleman said. “A coastal-based contract is going to be much more relevant in selling crude into the global market.”
Houston may also start competing with other major export locations such as Corpus Christi, analysts said, as more infrastructure is built out to ship crude overseas.
The plans for a Houston futures contract come at a time when regional prices are splintering. A lack of pipelines and workers have depressed prices in Midland, Texas, as crude supply is unable to get out. As of Friday, Midland prices were $8.44 a barrel below where U.S. oil futures based on Cushing prices closed. Meanwhile, Houston prices are currently trading $4.77 above Cushing.
New futures contracts regularly face hurdles in garnering enough traction and liquidity to compete with other well-established products. Many doubt that trading off Houston prices will quickly overtake that of Cushing.
“The old guard may be slow to shift into a new pricing dynamic,” Mr. Coleman said.
In 2016, CME Group launched futures contracts that track the difference between Houston and Cushing prices—allowing market participants to hedge their exposure to gaps. Combined open interest on such products between ICE and CME has steadily risen to more than 180,000 contracts, more than double last year’s level. ICE and CME are the two dominant players in the oil futures market.
Escalating trade tensions between the U.S. and China could also derail the trend of growing exports, and undermine the emphasis on Houston pricing, said Philip Verleger, an energy economist.
“China is one natural market for U.S. crude,“ Mr. Verleger said. “The trade war that’s been started by Trump could cause some problems initially.”
70 Comments on "Houston Is a Big Energy Hub, So Why Not Price Oil Futures There?"
GregT on Wed, 18th Jul 2018 8:34 am
“You forgot human wisdom or the lack of which is the real root cause with your cause the result.”
Actually Davy, no I didn’t. Human wisdom, or lack thereof, could not have caused population overshoot without a surplus in energy.
Davy on Wed, 18th Jul 2018 8:39 am
Grehgger, why is it so hard for you to admit you are a rich lying hypocritical bastard? Lol. You dumbasses are obviously confused with who I am. Sometimes I am a poor goat farmer then sometimes a jet setter. Make your minds up why don’t you. You look foolish. In the meantime I neuter your extremism daily while you whine and moan. What a pussy.
GregT on Wed, 18th Jul 2018 8:51 am
“Grehgger, why is it so hard for you to admit you are a rich lying hypocritical bastard?”
Because I’m not Davy. That would simply be more of your usual delusional accusations.
“You dumbasses are obviously confused with who I am.”
Unless all of your stories are complete BS, which I am inclined to believe, it’s difficult to be confused about who you are, because you have told everyone here who you are Davy.
Davy on Wed, 18th Jul 2018 8:59 am
Gregster, you sold a Vancouver house for $1MIL, have a doctor wife, and according to your big self aggrandizing mouth a healthy retirement portfolio. This is all documented on this board. I think we can give you the rich hypocritical bastard hat gregster.
GregT on Wed, 18th Jul 2018 9:04 am
As has been pointed out to you numerous times before Davy, a million dollars would buy a nice little 800sq/ft condo in the Vancouver market, and my retirement portfolio does not include a private jet, like yours does.
Davy on Wed, 18th Jul 2018 9:17 am
Now greggie is stuttering and backtracking. Lmfao. What is it grehggie so $1MIl is OK if it is in butthole Columbia? It’s ok so you can act rich and not rich. What a numb nut hypocrite.
GregT on Wed, 18th Jul 2018 9:27 am
Living in a highly inflated market does not make people rich Davy. It only drives up living expenses.
Davy on Wed, 18th Jul 2018 9:44 am
Backtracking again grehggie. $1MIL is rich anywhere. Denial is a definite sign of a personality problem when it comes to the hipocrisy or pointing fingers at others.
GregT on Wed, 18th Jul 2018 9:59 am
“$1MIL is rich anywhere.”
A million dollars is not rich when the ‘average’ house costs $1,309,352, and a million dollars would buy a 1200 sq/ft rancher, on a tiny city lot, built in the 1950s, with no upgrades. For the average person home ownership in this market equates to living from pay check to pay check, or simply going further and further into debt.
You don’t have the foggiest clue as to what you’re going on about Davy, as per usual. Just more of your usual delusions.
https://www.zolo.ca/vancouver-real-estate/trends
Davy on Wed, 18th Jul 2018 10:11 am
Dumbass you don’t live in Vancouver. You cashed out and now have your little hideaway with the doctor wife. You are rich but want to act like you are not so you can point your hypocrisy at others. What a low life.
GregT on Wed, 18th Jul 2018 10:18 am
“You are rich but want to act like you are not so you can point your hypocrisy at others.”
More of your usual delusions Davy. You really are in desperate need of psychological intervention.
Davy on Wed, 18th Jul 2018 10:35 am
Translation: grehggie does not have a valid answer to my comment which means I made my point. Grehggie is stuck in the comment loop of failure.
GregT on Wed, 18th Jul 2018 10:45 am
“Translation: grehggie does not have a valid answer to my comment which means I made my point. Grehggie is stuck in the comment loop of failure.”
The fact that you are incapable of understanding my comments, speaks volumes to your lack of intelligence Davy.
Davy on Wed, 18th Jul 2018 11:28 am
translation: grehggie is stuck in the failure loop.
GregT on Wed, 18th Jul 2018 11:36 am
No translation needed.
The fact that you are incapable of understanding my comments, speaks volumes to your lack of intelligence Davy.
A housing market bubble does not equate to being rich, in fact, just the opposite. And when that bubble pops, a large percentage of the population will find themselves out on the streets.
But of course Davy, never let intelligent rational thought, get in the way of your delusional emotional outbreaks. Nothing less is to be expected from you buddy.
Davy on Wed, 18th Jul 2018 11:50 am
“The fact that you are incapable of understanding my comments, speaks volumes to your lack of intelligence Davy.”
Comment failure loop again.
“A housing market bubble does not equate to being rich, in fact, just the opposite. And when that bubble pops, a large percentage of the population will find themselves out on the streets.”
Where did I say that grehgiee? I said you cashed out and took your cool $MIL up to Salmon run and now have you little getaway doomstead with the doctor wife.
“But of course Davy, never let intelligent rational thought, get in the way of your delusional emotional outbreaks. Nothing less is to be expected from you buddy.”
Comment failure loop again. Grehgie thinks if he says something enough times it will become real.
GregT on Wed, 18th Jul 2018 12:06 pm
The entire housing market throughout BC is in a bubble Davy, and yes, even in Salmon Arm, which is in the middle of nowhere.
Does this look like a three quarters of a million dollar home to you?
https://www.royallepage.ca/en/property/british-columbia/salmon-arm/340-edgar-road-se/8103543/mls10163567/
GregT on Wed, 18th Jul 2018 12:11 pm
One bedroom, and an outhouse? What a steal.
Cloggie on Wed, 18th Jul 2018 12:22 pm
https://www.geenstijl.nl/5142930/te-koop-in-amsterdam-17m2-voor-200-000/
Amsterdam, cellar, 17m2, 200,000 euro
Subez D on Mon, 22nd Jun 2020 6:27 pm
It is interesting to note just how some asset classes (commodities like oil) can deflate while other assets like real estate can continue to deflate. The average house now costs over one million. At best you will get a house around 2000 sqft (perhaps a bungalow). The lot size will probably be around 3,000 square feet. The year built around 1970s.
Home ownership is ludicrous in the real market, all the while the price of oil and other commodities implodes… what gives?
https://www.strawhomes.com/mls/vancouver-east-homes/