Robin Woodhead, who later became the first chairman of the International Petroleum Exchange (IPE) in London started an active dialogue with Treat about whether they could start a Brent Crude oil contracts. Treat was very supportive and gave Woodhead strong support and a lot of advice. Shortly thereafter, after substantial conversations, The IPE was formally launched and started trading Brent. Treat and his research staff then began looking for other oil products to trade. Gasoline was clearly next on the product list but there was a lot of debate about where the delivery point should be. The Gulf Coast was the easiest, but the exchange also looked at California markets, but decided they wouldn’t work.

  1. COMEX, the second division of NYMEX, was established in 1933 after four small exchanges merged.
  2. The NYMEX plays a vital role in trading and hedging, as it enables the companies to manage their risk by using futures and options on energy and precious metals.
  3. Through the 1970s, 80’s and 90’s COMEX, NYMEX, and other exchanges shared a single trading floor[6] in 4 World Trade Center.
  4. Floating storage is the last to fill as it’s more expensive and would hypothetically be the last available option to store Brent crude.

The New York Mercantile Exchange (NYMEX) is the worlds largest exchange, trading physical commodity futures. It was founded in 1872 and is currently owned by the Chicago Mercantile Exchange Group (CME). The other three exchanges operated under the Chicago Mercantile Group are; the Chicago Mercantile Exchange (CME), Chicago Board of Trade (CBOT) and Commodity Exchange, Inc. (COMEX). In September 2006, the NYMEX teamed up with the Chicago Mercantile Exchange (CME) and started using the CME’s Globex electronic trading platform.

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 continuous delivery maturity model natural gas. The COMEX division oversees the trading of metals, such as gold, silver, and copper, and also FTSE 100 index options. In fact, the concept of exchanging forward contracts in a “futures market” may have originated at the CBOT in the 1860s.

NYMEX Crude Oil Front Month

And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data. When storage approaches operational capacity, onshore storage fills first because it is cheaper. Floating storage is the last to fill as it’s more expensive and would hypothetically be the last available option to store Brent crude.

What’s the Henry Hub, and What’s It Got to Do With the NYMEX?

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. Several different pricing products are available in the market, the most common of which are NYMEX and Index Natural Gas Contracts. The Chicago Mercantile Exchange, sometimes referred to as the Merc, has both public outcry trading floors and an electronic trading platform called GLOBEX, where more than 70% of its transactions take place.

Diesel futures were sharply lower with the NYMEX March ULSD contract down by 6.25cts to $2.7441/gal while the more active April contract was off by 6cts to $2.6921/gal. The March contract was down 4.17cts to $2.2930/gal Friday, placing it more than 2cts/gal lower than a week ago. The April contract, which represents a more expensive summer blend of fuel, was down 4.04cts to $2.5295/gal.

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 between the two exchanges occurred in 2006 in a move approved by shareholders of both organizations. Up until that merger, they employed substantially different rules, regulations, market offerings, and trading engines.

Like most things bought and sold in high volume, supply and demand play a critical role when it comes to setting natural gas prices. When natural gas production is higher than the demand—perceived or actual—prices tend to fall. Crude oil and refined product futures contracts are all seeing strong losses heading into Friday afternoon, giving back much of the previous day’s gains, and setting prices up for weekly losses. Holding onto tradition, the NYMEX functioned as an open outcry trade exchange until the early 2000s. Under this type of setup, traders would meet on an open floor—or pit—and make exchanges with a system of shouting and elaborate gestures.

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Federal Reserve is hesitant to begin cutting interest rates, are pressuring prices even as ongoing tensions in the Middle East raise supply concerns. In a “contango” market (front-month discount vs. forward month premium), the roll yield is negative, because the participant has to sell at a lower price and buy at a higher price — losing money every time that happens. In a “backwardated” market (front-month premium vs. forward month discount), the roll yield is positive, because the participant has to sell at a higher price and buy at a lower price — making money every time that happens. When the market is oversupplied relative to demand (as it is currently), the forward curve is usually in contango; when the market is undersupplied relative to demand, the forward curve is usually in backwardation. This greater scope of logistics and storage flexibility – including onshore and floating – means Brent is less prone than WTI to going negative.

ICE Brent futures contract is a deliverable contract based on Exchange for Physical (EFP) delivery with an option to cash settle against the ICE Brent Index. This means that market participants have the option – but not the obligation – of taking physical delivery by using the EFP mechanism. On the demand side, the weather usually plays the biggest role, as people buy more natural gas when it’s cold out to help heat their homes and businesses.

The trading floor was not large enough to accommodate the huge number of the combined exchange’s employees, so it relocated to the World Financial Complex in southwest Manhattan in 1997. 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.

The ability to quickly move Brent on vessels around the world makes it adaptable and sensitive to short term global supply and demand conditions. As Brent reflects global fundamentals and doesn’t have regional logistics and storage constraints, it is less subject to extreme price swings than WTI, particularly at the front of the forward curve. This can be seen on the chart below, where Brent Month 1 to Month 2 timespreads are less volatile than WTI Month 1 to Month 2 timespreads.

CBOT is the Chicago Board of Trade and while it is now under the CME umbrella, before the merger in 2006 the CBOT used vastly different rules, regulations, trading engines, and traded with different offerings. Refined product prices rallied on Thursday after the latest Energy Information Administration data showed declines in distillate and gasoline inventories amid a continued significant decrease in U.S. refinery operations. Delivery has to be made and accepted at any pipeline or storage facility in Cushing with access to designated storage facilities. 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. Simplot and a few NYMEX traders—both working to scam and manipulate the potato market—went head to head in what’s now known as the Great Maine Potato War.

The NYMEX suffered a hard blow to its reputation—not that it was all that sparkling in those days—and it got out of the potato trading business and shifted its attention to the energy market. For more than 150 years, traders have been dealing in various types of commodities in the U.S., though most early commodities were agricultural products. In the 1920s, the federal government began regulating the markets in an attempt to prevent fraudsters from running amok. The Chicago Board of Trade is the oldest operating futures and options exchange in the world.

The Chicago Mercantile Exchange (CME)

Based on analysis and reporting in recent weeks, this view is widely held among oil market analysts and traders. 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). Aside from the IEA’s forecast that maximum operational crude storage capacity would be reached by mid-year, a key point was that onshore storage could become filled locally before it reached that point globally. They particularly warned about land-locked regions within North America or Russia – a dynamic that appears to have played out at Cushing (see below). The U.S. Commodity Futures Trading Commission (CFTC) monitors and regulates the NYMEX and other derivatives markets dealing in futures, swaps and certain types of options.

The total volume of the daily exchange of the CME group is about 30 million contract and 10% of it is traded on the NYMEX. The companies trading on the NYMEX send their independent brokers to participate in the open outcry. The employees at the NYMEX record the transaction, while the independent brokers trade on behalf of the large companies.

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