West Texas Intermediate crude specifications will change as early as the end of 2013 to ensure the quality of the oil in the world’s most actively traded energy contract, according to CME Group Inc.
The Crude Oil Quality Association, an industry group, recommended adjustments to the light, sweet crude benchmark in 2010 that will form the basis of the move, Damon Leavell, a CME spokesman in New York, said by phone today. CME plans to add to the contract requirements this year or next, he said. The association called for new guidelines on nickel, vanadium, micro-carbon residue, acid and distillation yields.
The contract modifications come amid growing concern that a boom in North American shale-oil production may being changing the characteristics of crude supplies at Cushing, Oklahoma, the delivery point for the WTI contract. Output from places such as North Dakota’s Bakken formation helped drive stockpiles at Cushing to a record high earlier this year.
“Things have changed, and we now believe having more specifications are important,” Dennis Sutton, feedstock quality manager for Marathon Petroleum Corp. and a member of the quality association, said today in Seattle at a conference organized by the group.
The association began developing a proposal for additional WTI requirements around 2006 to address refiners’ concerns that foreign oil delivered on the Seaway pipeline, which was then flowing north from the U.S. Gulf Coast to Cushing, could compromise the quality of WTI crude.
Enterprise Products Partners LP and Enbridge Inc. reversed Seaway’s flow last year to help alleviate the glut of oil at Cushing by transporting it to Gulf Coast refiners.
“Now that it’s reversed, you’re not seeing those foreign crudes blended from the line, but now you’ve got a lot of shale production,” Sutton said. “The traditional contract specifications of gravity and sulfur are no longer adequate to define the crude from a refiners’ standpoint.”
While CME hopes to change the WTI contract this year, the effort may be pushed into 2014, Leavell said. The company is still asking market participants for feedback on the proposed requirements, he said.
Sutton said during the conference today that at least one member of the association has been told by CME that changes could be announced within a few months and may become effective in 2014.