The U.S. shale boom has helped drive oil prices around the world. As crude production has grown in the United States, so too has the number of oil traders looking to Texas for protection from volatility. Exchange giant CME Group reported a record high for the number of outstanding agreements for crude deliveries from Houston and Midland on February 8th. The surge in activity reflects how U.S. crude exports increasingly shape global oil prices and the financial instruments used by producers, refiners and traders. In June, a Texas-produced crude will be added to the Brent complex, the global benchmark.
The U.S. Energy Information Administration reported a record of 5.1 million barrels of crude exported a day during the week of October 21st, a ten-fold increase since former President Barack Obama signed a bill allowing exports. In response, traders have begun using related derivatives to limit their risk, including futures contracts and agreements for deliveries months or years in the future.
Across CME Group markets, investors’ daily trading of WTI contracts tied to Houston and Midland has roughly doubled from the same period a year earlier. In 2023, a record 361,285 of those contracts remained unsettled, representing attempts by producers, refiners and traders to limit risk in the future.
The growth in the number of crude tanker trips to Europe has also threatened to make a closely watched global benchmark less representative of real-world trading. To better represent physical trading and limit volatility, Platts will begin incorporating U.S. crude from Midland into their price assessments for Brent in June. Intercontinental Exchange (ICE) has also started trading a new futures contract pegged to the price of Midland-quality crude when it reaches the Gulf Coast.
Overall, the increasing reliance on Texas crude oil signals a shift in the global oil market, where U.S. exports are playing an increasingly prominent role.