CME Petroleum Index relevance to Asia markets grows
The CME Petroleum Index (CPI) is based on the liquid futures contracts for WTI, RBOB Gasoline, and Ultra Low Sulphur Diesel (ULSD) traded at the New York Mercantile Exchange (NYMEX) ‒ part of CME Group. The CPI has specifically been designed to provide access to the deep and liquid crude oil and refined products markets. Crucially, the CPI captures the increased trading interest in these key energy benchmarks from Asia-Pacific. Crude oil flows from the US to Asia, and more specifically Japan, have reached around 1.4 million barrels per day ‒ further reenforcing the role of Asia in the global energy markets.
The structure of the CPI provides investors with diversified exposure to physical energy commodities via futures contracts.
Volatility in US energy prices remain high
The effects of the global pandemic fed through to global energy prices for much of 2020 and into 2021, compared to prices in 2019 and 2018. The uncertain demand outlook for both crude oil and refined products contributed to the volatility in energy prices. WTI Crude Oil futures prices averaged $63 per barrel in the first six months of 2021, reflecting the rebound in oil demand compared with $37.50 per barrel over the same period 12 months earlier.
Chart 1: Volatility in US energy prices
The CPI captures the growing liquidity in the CME core petroleum products with a high degree of exposure to WTI Crude Oil futures, the most actively traded global crude oil benchmark. Futures trading volumes in the underlying components of the index have increased in recent years. Total trading volumes across the key benchmarks have grown at an annual compound growth rate of around 5% since 2010, reflecting the deep and liquid state of the futures markets.
The component index weightings in the index provide investors with exposure to both the crude oil and refined product markets, all three of which are relevant for the Asia markets.
Table 1: CPI Index component weights
| CME Group symbol | Futures contract | Petroleum Index weighting |
|---|---|---|
| CL | WTI Crude Oil* | 72% |
| HO | NYMEX Ultra Low Sulphur Diesel | 15% |
| RB | NYMEX NY RBOB Gasoline | 13% |
*New York Crude Oil
Total daily futures trading volumes exceed one million lots on a regular basis across the three NYMEX contracts, helping provide a robust underpinning to the CPI. Using liquid futures benchmarks also helps to build confidence around some of the investment decisions that companies make about how to incorporate the CPI into their trading strategies.
In the second quarter of 2021, total trading volumes averaged around 1.2 million lots per day ‒ building on the 1.4 million lots per day traded in the first quarter of 2021.
Chart 2: CME Petroleum futures volumes remain high
Globally relevant energy benchmarks
The WTI Crude Oil futures contract is the largest component of the CPI at 72% ‒ reflecting its status as the world’s most actively traded crude oil benchmark contract. Exports of US crude oil are highly relevant to the Asian markets, with refiners processing increased volumes of total US exports. Trading volumes from the Asia time zone are also increasing and now account for around 20% of the total daily traded volume of WTI Crude Oil futures.
Sitting alongside WTI Crude Oil are the key US refined product benchmarks, allowing investors to gain exposure to RBOB Gasoline and Ultra Low Sulphur Diesel. The RBOB contract is the most liquid gasoline futures contract in the world and Ultra Low Sulphur Diesel is one of the major low sulphur distillate benchmarks. RBOB Gasoline accounts for 13% of the CPI whilst Ultra Low Sulphur Diesel accounts for a further 15%.
