NYMEX to adopt new U.S. oil specifications backing WTI contract

NEW YORK Wed Nov 6, 2013 4:47pm EST

NEW YORK Nov 6 (Reuters) - CME Group plans to announce early next year that it will adopt new specifications and tests for crude backing its benchmark oil futures contract, a person familiar with knowledge of the plan said on Wednesday.

The recommendations were submitted to the exchange for consideration by the Crude Oil Quality Association (COQA), who began testing crude oil several years ago in an attempt to identify the kinds of lower quality crudes being delivered to refineries.

The CME's New York Mercantile Exchange (NYMEX) benchmark light, sweet oil futures contract is backed by a grade of crude oil known as West Texas Intermediate (WTI) with the contract's delivery point in Cushing, Oklahoma.

The NYMEX expects to fully implement the new specifications by the end of next year.

The move to change the specifications was prompted, in part, by concern over some in the industry passing off so-called "dumbbell" crudes, oil blended to look like the WTI benchmark that did not run smoothly through a refinery and readily yield oil products such as gasoline and heating oil.

Condensates, or light oil, streaming from newfound shale plays in Texas and North Dakota are being delivered among heavier grades of crude imported from Canada at Cushing. The COQA, recognizing these different oil types could change WTI's composition if not properly blended, tested the oil.

The industry group came up with a list of seven specifications and tests for those specifications, including metrics for acid, carbon residue and nickel.

"There are lots of streams coming into Cushing," said Dennis Sutton, feedstock manager with Marathon Petroleum Co, who has been leading the COQA effort on this front. "All the pipeline connectivity and all the blending that is going on, that could not have been envisioned 10-20 years ago."

The specifications were first made public in 2010, Sutton said, and the industry has been slowly adopting them at oil terminals on the ground.

COQA is eagerly awaiting NYMEX's nod that would make them part of the futures contract.

Dan Brusstar, CME's director of energy research and product development is expected to further outline its plans at the COQA annual meeting on Thursday in Dallas.

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