According to a press release on Friday, the CME will be launching its own Argus Sour Crude Index swap futures to fill any potential hedging hole left in the market (our emphasis):
CME Group, the world’s largest and most diverse derivatives marketplace, today announced the launch of trading and clearing services for cash-settled trade-month swap futures on the Argus Sour Crude Index (ASCI) as published by Argus Media. Under a licensing agreement with Argus Media, CME Group can develop futures, options and over-the-counter (OTC) offerings on a broad range of Argus products.
Trading for the ASCI product is scheduled to begin November 23 on the New York trading floor. Clearing services will be available through CME ClearPort, a set of flexible clearing services open to OTC market participants to substantially mitigate counterparty risk and provide neutral settlement prices across asset classes. The ASCI tracks the price in the physical market of a basket of US Gulf Coast crude oils, including Mars, Poseidon and Southern Green Canyon, which are priced at a differential to the NYMEX Light Sweet Crude Oil (WTI), the world’s most liquid, leading crude oil benchmark.
The ASCI OTC contract will provide producers, commercials and others an essential tool for pricing spreads on these grades with NYMEX WTI. In addition, CME Group plans to launch a new physically delivered US Gulf Coast Sour Crude Oil futures contract, which will be listed on CME Globex and CME ClearPort by the end of January 2010. The sour crude futures contract has main delivery grades that closely mirror the ASCI, enabling an efficient tool for hedging opportunities and to meet the evolving needs of the energy industry.
The contracts will be listed by and subject to the rules and regulations of NYMEX. “We are pleased to offer OTC futures contracts on the ASCI, which complement our WTI futures,” said CME Group Executive Chairman Terry Duffy. “This week, Saudi Arabia announced that they will begin using the ASCI to price their substantial oil exports. This further strengthens the benchmark status of our WTI contract as ASCI components are priced as differentials to the WTI settlement price.”
“The ASCI OTC futures contract, in concert with the WTI contract, will enable our customers to hedge price exposure to the global crude market with greater precision,” said CME Group Chief Executive Officer Craig Donohue. “Additionally, Saudi Arabia’s adoption of ASCI could spur demand for our new sour crude futures contract, which will provide an additional pivot point for price determination and risk management in the world oil market.” The vendor code for the ASCI contract is 29. The first listed month will be the January 2010 contract month. The contract will be listed for 36 consecutive contract months.
The CME’s quick move to adjust to the sour switch, which we note has been facilitated by a licensing agreement with Argus, should help the exchange retain Nymex’s standing as the provider of the most liquid crude contract in the US.
However, even though the new sour product will be priced as a differential to WTI at this stage, that doesn’t mean that further down the line - if and when the sour index takes off - the index and all its derivatives won’t end up being priced completely off their own right.END