The Brent/WTI Competition Continues by Attain Capital

Which crude oil market is more prominent? Which one do traders/investors/talking heads pay more attention to? As we’ve previously discussed, the dominant market plays a much larger role than the market itself, but also the competition between exchanges, the CME Group Inc (NASDAQ:CME) vs. the Intercontinentalexchange Group Inc (NYSE:ICE).

Alberta Oil WTI

A little more than a year ago, the trading volume for Brent oil futures offered by the ICE overtook  the WTI crude futures (offered by the CME) on the CME Group Inc (NASDAQ:CME)’s New York Mercantile Exchange. The theory is the more volume a contract holds, the more liquidity if offers, the more traders will chose one over the other. The more traders who view Brent as the contract to trade, the more Brent becomes an accurate representation of the global oil market.

But it just so happens there’s a twist in the CME crude oil market (WTI) competing with ICE’s crude oil market (Brent) that we hadn’t mentioned before. The CME launched its own version of the Brent contract to compete with ICE’s Brent contraction back in December of 2011.

There’s a key difference between the ICE Brent contract and the CME contract though. If you look at the contract specification on the CME’s website, you will see the settlement type is listed as “Financial.” In other words, the CME Brent contract is not backed by the actual barrels of oil like their WTI product – end result is that the CME Brent Contract will not be utilized as often by hedgers, as it is more of a speculative market.

So why are we bringing this up almost two and a half years after the contract was launched? It just so happens, we received an email notification yesterday, that the NYMEX (owned by the CME) Brent contract has reached record highs in open interest and average daily volume.

  • “Open interest now at a record high of over 90,000 – 3x the open interest seen in January 2013

  • Record average daily volume over 57,000 contracts in April – strong volume continues in May, with average daily volume exceeding 51,000 contracts”

So the competition lives on…

P.S. – There’s also the Oman crude oil futures contract traded on the DME, but it primarily only trader in the Middle East and Asia