NYMEX makes its case in its webinar

So without further comment, here's the story that appeared today on Platts Global Alert regarding the event.

CME's Levin backs NYMEX crude benchmark, touts 'counting barrels'
New York (Platts)--12Mar2009/245 pm EDT/1845 GMT

In a wide-ranging attempt to defend the CME/NYMEX light sweet crude benchmark, CME senior vice president Robert Levin defended Cushing, Oklahoma, as both a contract delivery point and as an accurate representation of the US market.

In a webinar Thursday morning -- another is scheduled for Thursday afternoon -- Levin tried to steer clear of criticism of Brent as a crude benchmark. However, as his presentation progressed, there were statements that could be interpreted as gentle criticisms of Brent against WTI.

But referring to the fact that WTI in late December and through early this month traded below Brent, a reversal of historic norms, Levin said: "We're not surprised by unusual relationships. We think both benchmarks are doing their jobs and doing good jobs."

Levin described Brent vs. WTI comparisons as "not even talking about one set of prices vs. another but a curve against another." In that regard, WTI's deep recent contango reflected the enormous growth in storage held at Cushing, while Brent's relationship, and even short-lived backwardation, "seemed to make sense in the Brent market...we don't feel bad that WTI didn't reflect that. We think the criticisms are off the mark."

SAYS CUSHING IS CONNECTED

Much of Levin's defense of the WTI contract as a benchmark came down to what he described as "counting barrels." For example, Levin noted that the Energy Information Agency each week provides inventory numbers for Cushing, "and they do it at a pretty good level of detail," Levin said.

By contrast, International Energy Agency figures on the inventories have a "significant lag," Levin said. Additionally, the Brent market does not have a "timely release of fundamental market information on supply, demand and inventories," he said.

Levin, early in his presentation, attempted to refute the criticism that the Cushing-based contract is physically disconnected from the rest of the market. He cited statistics on crude flows that showed 1.3 million b/d moves from the Gulf of Mexico to the US Midcontinent up either Capline or the Seaway pipeline.

In one of his slides, Levin referred to this strength as "connectivity to market at large economically [and] physically." He said there was "smooth seamless convergence between futures and physical," a reference to there being virtually no price difference in owning a futures contract or a physical contract for the same month's delivery. "The [market's] strong knowledge of Midcontinent and US Gulf physical flows of oil is helpful," he said.

Levin stressed several times he was not criticizing the role of Brent as a marker. However, touting the strengths of WTI inevitably led to observations about Brent that certainly could be viewed by some as criticisms.

'THREATEN FUNGIBILITY'

The pipeline delivery aspect of WTI means that it is easy to deliver small amounts of crude, Levin said, and he contrasted that with the partials market that has developed around the cargo-based trade in the Brent market.

The Dated Brent market is "expressly designed" to be traded only by larger players, and is "constructed to be lumpy and opaque."

There are four streams that are used to determine the assessed value of Dated Brent: Brent, Oseberg, Forties and Ekofisk. But the four streams are not fungible, Levin said, "so it essentially comprises four sub mechanisms."

Levin also said that various suggestions to remake the WTI contract with multiple delivery points reflect a "complete lack of understanding of a robust reliable benchmark." Multiple delivery points would "threaten fungibility, reliability, transparency, competitiveness and the liquidity of the Cushing mechanism," he said.

However, some of the criticism against the NYMEX contract focuses not so much on the inability of Gulf Coast oil, either domestic or imported to get to Cushing; it has been focused on the inability of lower-price crude to get out
of Cushing in large enough quantities, because of pipeline constraints, to be sold into higher-price markets. Levin did not address that issue during his presentation, and it was only touched on briefly when he answered questions submitted through the webinar software. He also did not address the long-term possibility of crude pipeline projects that would relieve that Cushing-based bottleneck.--John Kingston, john_kingston@platts.com