November 7, 2013 / 12:27 AM / 4 years ago

UPDATE 1-NYMEX set to adopt new WTI crude oil specs from end-2014

By Jeanine Prezioso

NEW YORK, Nov 6 (Reuters) - CME Group Inc plans to announce new specifications and tests for West Texas Intermediate (WTI) crude backing its benchmark oil futures contract early next year, and implement the new specs by the end of 2014, a person familiar with knowledge of the plan said on Wednesday.

The recommended specifications were submitted to the exchange for consideration by the Crude Oil Quality Association (COQA), who began testing crude oil several years ago in an attempt to identify and weed out lower-quality blended crudes that were being delivered to refineries.

WTI is the light, sweet crude oil that underpins the cme’s new york mercantile exchange (nymex) futures contract, the most liquid in the world.

The effort to tighten the technical terms for wti has taken on new urgency as a surge in highly variable shale crude and growing volumes of heavy canadian crude flow into cushing, oklahoma, the delivery point.

Concerns about the volume of off-specification or non-deliverable crude in the tanks at cushing has unnerved oil traders several times this year, and cme is planning to phase in the changes in order to avoid alarming the market.

The NYMEX expects to fully implement the new specifications by the end of next year.

The move to change the specifications was prompted, in part, by concern over some in the industry passing off so-called “dumbbell” crudes, oil blended to look like the WTI benchmark that did not run smoothly through a refinery and readily yield oil products such as gasoline and heating oil.

Condensates, or light oil, streaming from newly discovered shale plays in Texas and North Dakota are being delivered among heavier grades of crude imported from Canada at Cushing. The COQA, recognizing these different oil types could change WTI’s composition if not properly blended, tested the oil.

The industry group came up with a list of seven specifications and tests, including metrics for acid, carbon residue and nickel.

“There are lots of streams coming into Cushing,” said Dennis Sutton, feedstock manager with Marathon Petroleum Co, who has been leading the COQA effort on this front. “All the pipeline connectivity and all the blending that is going on, that could not have been envisioned 10-20 years ago.”

The specifications were first made public in 2010, Sutton said, and the industry has been slowly adopting them at oil terminals on the ground.

COQA is eagerly awaiting NYMEX’s nod that would make them part of the futures contract.

Dan Brusstar, CME’s director of energy research and product development is expected to further outline its plans at the COQA annual meeting on Thursday in Dallas.

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