How WTI Became the Most Important Commodity Contract on the Planet

It took another year for WTI to breach more than 100,000 contracts in a single month, but after that its growth was explosive.  By the end of the 1980s, WTI was regularly trading more than two million contracts per month and in recent years we have seen plenty of trading sessions when WTI trades over one million contracts per day and even more.

This dramatic surge in trading activity over the past four decades reflects the awareness that oil prices are unlikely to ever go back to being stable and predictable.

The last 40 years have seen multiple geopolitical events that have affected the supply of oil, whether it has been wars in the Middle East or more recently in Ukraine.  On the demand side, key consumer areas have experienced repeated cycles of economic booms and busts, and more recently consumer demand has been impacted by pandemic lockdowns and by the growing take up of electric vehicles.

The great uncertainty surrounding oil prices, which are so crucial for so many companies, made it more and more important for firms to try to manage their exposure to oil prices by hedging with futures.

This trend towards greater awareness of risk management has been a key theme of the last four decades – WTI crude oil futures have helped firms take out “price insurance” to avoid downside risks if they are a producer, or upside risks if they are a consumer.

A 40th birthday is often an opportunity for some self-evaluation: how did we get to this point and where are we going next? Certainly, much has changed since WTI was launched at the height of disco fever and the Cold War.

When WTI first launched 40 years ago, the U.S. oil markets looked very different.  U.S. oil was not exported, and it was widely believed that U.S. production was on a one-way downward spiral. 

The shale oil revolution changed all of that by unlocking vast new supplies of crude oil.

In recent years, U.S. production has surged once more, from 8.7 million barrels per day in 1983 to its current giant level of 12.4 million barrels per day. At the same time, U.S. oil exports have soared to record levels – from virtually zero when WTI launched to a current rate of over 4 million barrels per day.

In recent years, WTI’s importance has also extended way beyond its U.S. heartland.  A major buildout of pipeline and port infrastructure has linked WTI’s delivery point of Cushing, Oklahoma to the world via the export terminals of the U.S. Gulf Coast. 

The growing role of the U.S. as a major exporter has made WTI ever more relevant to the global markets, and WTI-linked grades now play a key role in supplying Europe and Asia.

As it hits middle age, WTI shows no sign of slowing down.  Despite growing environmental awareness, oil demand is expected to continue to grow over the coming years as countries industrialize. Ensuring the need for a reliable price benchmark and for risk management has never been greater.