Oil producers, especially in the Permian Basin, will cheer the announcement of a new crude oil futures contract for physical delivery of WTI, which should start trading by year-end on the Intercontinental Exchange (ICE).

The launch of the new futures contract is the culmination of a year of work that began at this time last summer, when Argus Media and Platt’s agreed to start posting prices for a new crude designation, Gulf Coast Select. That was just phase one of the plan crafted by the Harold Hamm-backed American Gulf Coast Select Best Practices Task Force. 

“On April 20th last year, when the Cushing, Oklahoma, WTI contract traded down to negative $38, it was a wake-up call to the oil industry that the storage constraints and landlocked location of the Cushing contract could no longer be ignored,” said Hamm, who currently serves as chairman of Continental Resources Inc. 

“That was a turning point,” he continued. “Everybody said we’ve got to do something.”

RELATED:

Op-ed: Harold Hamm on US Oil’s Latest Milestone Moment

Now, the new contract has been named the Midland WTI American Gulf Coast contract (ICE: HOU). It is being launched on the trading platform operated by ICE, in coordination with Magellan Midstream Partners LP and Enterprise Products Partners LP. Both Magellan and Enterprise have extensive storage terminal and export facilities on the Texas Gulf Coast for oil export and to back up physical trading that stands behind “paper” trades. 

“You have to be kind of hard-headed to get this stuff done,” Hamm told Hart Energy. “It’s the culmination of a lot of work. These things are not easy, but we kind of forget how powerful the industry can be when we work together.”

“It’s overdue, is what it is,” he added.

Hamm said the first phase was getting a price marker, which occurred in June 2020. “Argus and Platt’s agreed when they saw how much sense it made.” Phase two was to secure terminal volume capacity, whether at Corpus Christi, Houston or St. James, Louisiana. Houston made the cut.

Now that the third phase is complete—securing a financial platform such as that of ICE where the new contract can be traded—all the parts have come together. (Originally Enterprise had a platform lined up with the CME’s Nymex, but it was canceled.)

Pending regulatory approvals such as from the Commodity Futures Trading Commission, trading of this contract will launch on ICE by the end of this year, Hamm said.

The new contract comes in response to market interest for a Houston-based index with greater scale, flow assurance and price transparency, the companies said. “It’s about more competition, more transparency and more liquidity,” Hamm said.

This is a happy marriage of four positives: surging oil production in the Permian Basin and elsewhere in the U.S., the capabilities and global reach of ICE’s state-ofthe-art electronic trading platform, and the necessary infrastructure for pipelines and storage operated by Magellan and Enterprise.