Intercontinental Exchange, Inc. a leading global provider of data, technology, and market infrastructure, announced that ICE Brent, the largest crude oil futures and options market in the world, has undergone its latest evolution with the addition of Midland WTI into the Brent basket, creating a new Midland exposure for the oil market to manage.
ICE Brent withstood the volatility across markets in 2022. Liquidity has consistently grown through 2023 with open interest up 31% since the start of the year at over 5 million contracts and ADV of approximately 1.2 million contracts. Brent options represent the primary crude oil options market in the world in terms of open interest and volume. This month, Midland-origin WTI crude became an additional deliverable grade into the Brent basket creating a link between the price for U.S. Gulf Coast (USGC) Midland barrels and the settlement of ICE Brent futures.
ICE offers four contracts central to the market’s new Midland exposure. These include ICE Brent crude oil (ICE: B); ICE Midland WTI (ICE: HOU); ICE Dated Brent vs. Brent 1st Line (ICE: DBF); and ICE Aframax USGC to U.K. Continent (Platts) Freight (ICE: WDE). Over 50,000 lots of the WDE contract have traded this year as participants seek to hedge their exposure to the cost of carrying crude from the U.S. Gulf Coast to the UK in an Aframax tanker.
“Ever since plans were finalized last year to include Midland WTI into the Brent complex, we’ve seen consistent growth in volume and open interest in ICE HOU as customers take advantage of the additional optionality that the HOU contract provides,” said Jeff Barbuto, Head of Global Oil Markets at ICE. “With HOU you get the option of physical delivery to two of the biggest terminals in Houston, with free movement to the terminal of your choice. In addition, alternative assessments of WTI in Houston only consider trades based on a smaller proportion of Midland origin crude shipped to Houston. HOU offers a more complete representation of the Houston market.”
ICE’s Midland WTI (Code: HOU) contract enables participants to directly price and hedge Midland WTI quality crude that meets Platts Midland specifications accepted into Dated Brent. The contract, underpinned by over 4 million barrels per day of supply capacity of Midland-origin WTI direct into Houston, is deliverable at the Magellan East Houston (MEH) and Enterprise Crude Houston (ECHO) terminals, both of which are connected to Platts-approved water terminals to deliver Midland WTI into Brent. The same physical Midland WTI barrels deliverable against the ICE HOU contract can be delivered into Dated Brent and the rest of the Brent complex.
“We’ve seen 3 to 4 million barrels a month going to delivery through the HOU exchange delivery process. In addition to that, we’re also seeing HOU EFPs (Exchange for Physicals) trade, which offer additional flexibility to other locations and delivery dates, reflecting how the market is finding more ways to utilize the contract,” continued Barbuto.
Over 11 million barrels went to physical delivery via HOU last month, including via the EFP mechanism, a record high for the contract. Liquidity in HOU hit a record 32,452 contracts in open interest on May 22, 2023, with the number of participants actively trading HOU growing to more than 70.
Across ICE’s global oil complex, open interest stands at 11.8 million contracts, up 23% since the start of the year, with average daily volume of 2 million contracts. Oil is one part of ICE’s extensive commodity markets where open interest hit a record 54 million contracts on May 22, 2023, up 16% since the start of the year.