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Trading data in Thomson Reuters Eikon shows 2017 volumes for
U.S. benchmark West Texas Intermediate (WTI) front-month
futures, the most exchanged contracts, will hit a record of
nearly 150 million.
This is more than double the 71 million trades for spot Brent
futures, the international benchmark, further widening a gap
that has yawned open as U.S. crude output has surged nearly 70
percent over the past five years.
The trend is also showing in market open interest, the number of
daily open contracts across all months, where WTI started edging
ahead of Brent in September.
Oil producers use derivative markets to lock in profits while
buyers aim to protect themselves against rising prices, with
liquidity further boosted by a raft of sophisticated trading
strategies and speculation by investors.
"U.S. shale oil epitomizes the modern way of dealing with
things," said Matt Stanley, a fuel broker with brokerage Freight
Investor Services (FIS) in Dubai. (Graphic: http://reut.rs/2BJPSTL)
"Producers in the USA have a plethora of modern tools available,
allowing them to hedge forward production (and) make use of
traditional (oil) reserve base lending arrangements, of which
many ... will have caveats in them that forward production is to
be hedged prior to release of funds for investment."
U.S. crude output is fast approaching 10 million barrels per
day, with only top exporter Saudi Arabia and top producer Russia
churning out more.
As new producers trade U.S. crude futures and more hedge funds
offer their services to producers, WTI volumes have run away,
leaving Brent behind.
Outside the United States, Middle East producers - which mostly
price their crude off Brent - barely hedge output.
Enjoying low production costs, their largely government-owned
oil firms sell most of their crude in long-term supply deals
under fixed Official Selling Prices (OSP).
Asia's big buyers from China to Japan - the biggest customers
for Middle East oil - also use futures markets very little,
resulting in far lower derivative market activity during Asian
trading hours.
But things might change. In Iraq, OPEC's second biggest
producer, state-owned oil company SOMO may start hedging some of
its output as a way to protect government revenue against the
risk of falling oil prices.
"All eyes will be on the first Middle East producers to really
start hedging their production next year," FIS's Stanley said.
"Then the market share battle is well and truly on."
(Reporting by Henning Gloystein; editing by Richard Pullin)
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