Magellan Midstream Partners LP and Enterprise Products Partners recently reached an agreement with the Intercontinental Exchange Inc. (ICE) to expand their terminal transfer arrangement in the Permian Basin.
The “no-charge” arrangement between the Magellan East Houston (MEH) and the Enterprise Crude Houston (ECHO) terminals to transfer crude oil delivered through the Midland WTI AGC futures contract (HOU) was recently expanded to include deliveries conducted via ICE’s Exchange for Physical (EFP) and Alternative Delivery Procedure (ADP) mechanisms.
“Expanding the free pump-over to include EFP and ADPs provides customers added flexibility to optimize their use of capital while still realizing the savings on the transfer costs they would otherwise incur,” Jeff Barbuto, global head of oil markets at ICE, commented in a joint release on June 1.
Since the contract began trading earlier this year, approximately 67,800 HOU futures have traded, representing 67.8 million barrels, including a record volume day on March 10 of 3,065 contracts. Open interest is at 2,647 contracts and goes out to January 2023.
The waived transfer costs apply to EFP and ADP deliveries in addition to all volume that goes to delivery through the HOU futures contract and is executed in accordance with ICE’s rules, and will remain in effect through March 31, 2023. A 10-cent per barrel charge will continue to apply for all other general transfers meeting HOU quality specifications.
If customers take an HOU futures position to delivery and they are not matched by the exchange at the buyer’s preferred terminal, the barrels are transferred between the MEH and ECHO terminals at no cost. Magellan and Enterprise are expanding this arrangement to now include HOU futures customers who take delivery via ICE’s EFP or ADP mechanisms at one terminal and desire to transfer the barrels to the other terminal.
The EFP mechanism allows participants to exchange HOU futures positions for the equivalent quantity of underlying physical Midland WTI barrels in the same delivery month. The ADP mechanism allows a buyer and seller to vary the terms of the delivery including, but not limited to, the location.
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