ICE increases Brent position limits following WTI Midland addition
Quantum Commodity Intelligence – The Intercontinental Exchange (ICE) announced Wednesday it would increase expiry and delivery position limits following the inclusion of WTI Midland into the Brent complex.
The Exchange said that expiry limits would increase from 6,000 to 7,000 lots with effect for the ICE Brent Crude Futures Jun23 contract, which expires on 28 April.
The amendment means that traders can take 7 million barrels of crude into the contract expiry over the last five business days, up from the current 6 million barrels.
Position limits were introduced in 2017 as part of European legislation to deter speculative trading positions, as opposed to genuine hedging requirements.
The limit was in part based on the size of the physical market, which at the time was approximately 1 million bpd made up of Brent/Ninian Blend, Fortis, Oseberg, Ekofisk and Troll - the latter coinciding with the introduction of position limits.
North Sea volumes from the five grades have subsequently declined to around 750,000 bpd, but the introduction of WTI Midland potentially adds a huge pool of physical liquidity into the underlying Dated Brent market following changes made to the benchmark by pricing agency Platts.
A paper published by the Oxford Institute for Energy Studies (OIES) last month calculated that US crude oil exports averaged a record 3.6 million bpd in 2022, up 21% on the previous year, a figure that is set to increase over 2023.
"The US has become the crude supplier of choice for European buyers since Russia invaded Ukraine. US crude exports to Europe jumped by 426,000 bpd to 1.4 million b/d in 2022," increasing the share of US crude exports destined to Europe rose from 35% to 41%.
OIES further noted WTI Midland makes up the largest proportion of the US oil exports into Europe, currently leaving the US Gulf Coast at a rate of over 1.5 million bpd.
As such, the position limit increase to 7,000 lots could lead to a further expansion once the new methodology beds in, said market watchers.
Limits
While position limits were bought in as a calming measure against large speculative positions, potentially by firms with little or no physical exposure, the limits proved problematic for major physical oil traders.
Oil majors and large trading houses typically ship and store millions of barrels of crude per day, much of it hedged against Brent.
The industry found something of a workaround in the form of exemptions for trading firms that could demonstrably show physical exposure of more than 6 million barrels at any given time.
This allowed for an extra limit of 4,000 lots, or a 10,000-lot total, which ICE confirmed will increase to 11,000 lots, or 11 million barrels.
ICE also said that position limits for ICE Dubai 1st Line Futures Jun23 contract (expiring on 30 June) and Midland WTI American Gulf Coast Futures Jun23 contract (expiring 22 ) will also increase from 6,000 to 7,000 lots.
The Dated Brent assessment is the world's most widely used commodities benchmark, pricing tens of millions of barrels of physical crude and refined product cracks every day. It is also extensively used in natural gas contracts.
Dated Brent also underpins the huge derivatives markets, including Brent futures, cash BFOE, CFDs and DFLs.
ICE Brent futures are settled against the Brent Index, which in turn is calculated from trade data from the BFOE cash market, a derivative of the Dated Brent physical market.
