New York Mercantile Exchange NYMEX

Below, you’ll find a monthly breakdown of the NYMEX historical settle prices dating back to 2016. Until recently, the exchange operated an open outcry trading system, as well as electronic trading. OPEC’s Joint Ministerial Monitoring Committee early Thursday said it will leave current production quotas in place as members are adhering to agreed-upon levels. The committee said it will continue to monitor market conditions and pointed to the willingness of member countries “to address market developments and their readiness to take additional measures at any time.” Once again, directly related to less extreme swings in timespreads for Brent compared to WTI, the roll-yield return for Brent is higher than for WTI.

  1. Holding onto tradition, the NYMEX functioned as an open outcry trade exchange until the early 2000s.
  2. While electronic trading has become the dominant method in recent years, open outcry trading remains an important part of NYMEX’s operations, particularly for complex transactions and during periods of high market volatility.
  3. Shortly thereafter, after substantial conversations, The IPE was formally launched and started trading Brent.
  4. When natural gas production is higher than the demand—perceived or actual—prices tend to fall.
  5. The energy futures and options contracts including contracts of crude oil, heating oil, natural gas, gasoline palladium, platinum, gold, and others are traded on the NYMEX.

Regulatory oversight ensures market integrity, customer protection, and compliance. The data generated by NYMEX trading activities provides valuable insights into global economic trends. With the construction firewoodfx review of centralized warehouses in the main business centers in Chicago and New York, smaller exchanges in other cities began to disappear while large exchanges like the NYMEX got more business.

What was the impact of the merger between the New York Mercantile Exchange (NYMEX) and the Chicago Mercantile Exchange (CME)?

The pricing differential takes into account such factors as regional market conditions, transportation costs and transmission capacity. A NYMEX contract provides price stability, as it is not exposed to regional risk like an Index structure. NYMEX pricing is influenced mainly from supply and demand volatility from a national perspective. In today’s gas market — with prolific deposits of gas recently discovered in the Appalachian, Texas, and Dakota regions — NYMEX pricing has been relatively low, with limited prolonged volatility. Furthermore, NYMEX’s price discovery process is critical to global commodities markets. The prices determined on the exchange reflect the market’s collective view of current and future supply and demand conditions for various commodities.

The COMEX division oversees the trading of metals, such as gold, silver, and copper, and also FTSE 100 index options. After launching the original crude oil futures contract, Treat began an aggressive marketing campaign to first bring in the large US and British oil companies and then moved on to pull in the large Middle East producers. It took almost a year to get the first US “majors”
to start trading, but several “majors” did not start for almost 5 years. The initial resistance from the OPEC producers was almost impossible to break through, although some finally gave in, among the first being Venezuela. These types of markets trade trillions of dollars per day and are done almost entirely by electronic trading. There are dozens of liquidly traded, regional index points which represent the cost of gas delivered into different market areas.

Investor flows can be less steady and more unpredictable that commercial hedging activity. The prices quoted for transactions on the exchange are the basis for prices that people pay for various commodities throughout the world. NYMEX trades futures and options contracts on a wide range of commodities, including energy products, agricultural products, and metals, as well as financial products such as interest rates and currency exchange rates. NYMEX Holdings Inc. was acquired by CME Group for $11.8 billion in cash and stock, with the acquisition completed in August 2006. The NYMEX division handles billions of dollars worth of futures and options contracts for energy products such as oil and natural gas.

Several different pricing products are available in the market, the most common of which are NYMEX and Index Natural Gas Contracts. These regulators enforce laws and regulations designed to maintain market integrity, protect market participants, and ensure the financial soundness of the exchange. The merger combined NYMEX’s leading position in commodities futures and options trading with CME’s extensive offerings in interest rate, equity index, and foreign exchange derivatives. As one of the world’s leading commodities exchanges, NYMEX has a significant influence on global commodity prices.

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These contracts are standardized agreements that obligate the buyer to purchase, and the seller to sell, a specific quantity of a commodity at a predetermined price at a future date. The potato bust tarnished the reputation of the NYMEX and trading volume declined significantly. The NYMEX President, Richard Leone, brought in John Treat, a White House energy advisor, to help restore the credibility of the exchange. Today, however, open-outcry trading is on the decline, and the number of trading pits has dwindled. In fact, given the cost benefits of the electronic systems and investor preference for fast order execution, a substantial percentage of the world’s exchanges have already converted to electronic networks.

The chart below shows that every year since 2009, with only two exceptions, the roll yield for Brent outperformed WTI; Brent was either more positive or less negative than WTI. These factors caused rapid stockdraws at Cushing and step backwardation in WTI; the result was that the annual roll yield for WTI was slightly higher than for Brent. The ability to quickly move Brent on vessels around the world makes it adaptable and sensitive to short term global supply and demand conditions. The exchange also offers futures and options contracts on financial products, such as interest rates and currency exchange rates.

How the NYMEX WTI futures contract works

Crude futures were modestly higher at midday Thursday, after OPEC and its allies said they will leave current production cuts in place. Refined product futures, however, were little changed in mostly directionless trade. Cushing crude stocks and capacity are extremely transparent, because they are reported each week by the US EIA. As of May 8, Cushing stocks1 stood at 60.2 million barrels, or 79% of working capacity, leaving only 15.7 million barrels spare. In addition, from early/mid-April through early May, all remaining storage has reportedly been leased. Contact us today and let’s start the conversation about how Edison Energy can evaluate and mitigate risks while aligning energy investments with your company’s strategic goals.

For the same reasons, and directly driven by the less extreme price swings, the realized volatility for Brent is lower than WTI. Over a long history, from June 2015 to December 2019, Brent volatility averaged around 3% less than WTI volatility – a material difference (left hand chart). The comparison in volatility from January 2020 onwards is shown separately (right hand chart) as the recent extreme price movements in WTI, including negative values, caused WTI volatility to spike. The IEA estimated that at the end of April, there were 4.6 billion barrels of crude in storage, or 86% of operational capacity. That left 750 million barrels of spare crude storage capacity remaining (relative to the mid-point).

The issue was compounded by the lack of existing pipeline infrastructure; the ability to move gas out of the region was severely limited, and excess supply became stranded in the tri-state region. An Index contract is subject to any constraint that limits gas into or out of an area. An example of this can be found in Dominion Appalachia Index (Figure B), which covers the eastern Ohio, western Pennsylvania and West Virginia markets. An Index contract structure is determined monthly, like the NYMEX, but is based on a specific region of the country (not Henry Hub, Louisiana). The merger resulted in the creation of the CME Group, one of the world’s largest and most diverse derivatives marketplaces. The merger provided market participants with a single platform for trading a wide range of derivatives, promoting market liquidity and efficiency.

Therefore, the most important constraint for NYMEX WTI futures is simply Cushing crude storage vs. Cushing storage capacity. Working storage capacity at Cushing is 75.8 million barrels, according to the US Energy Information Administration. This greater scope of logistics and storage flexibility – including onshore and floating – means Brent is less prone than WTI to going negative. Based on analysis and reporting in recent weeks, this view is widely held among oil market analysts and traders. While both are monthly-priced, variable products, understanding the benefits/risks of each will ensure your organization is entering into the best contract possible. One of the most important decisions an end-user will face when entering a natural gas contract is determining what pricing product best suits their goals and operational needs.

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At this point, the United States is more or less alone in maintaining open-outcry exchanges. Hurricanes and other extreme weather conditions, for example, can halt production, which can drive the price up. Then there’s the cost of delivering and storing the natural gas, which also has an effect. All prices are calculated based on the settlement price of the current front month contract.

With new markets forthcoming, forward Dominion Basis increased from historic lows and the monthly Index showed strength as well. However, in 2017, the pipeline was forced to stop construction due to environmental concerns. Once approval was granted for Rover to resume construction, the Index bounced back yet again, more than doubling in price (Oct 17 $1.10 – Nov 17 $2.50).

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