The New York Mercantile Exchange plans to launch a cash-settled futures contract tracking the Argus sour crude index by year end and another contract for physical delivery sour crude at a later date, NYMEX operator CME Group said on Thursday. CME said the NYMEX contract plans are a response to Argus Media's announcement on Wednesday that Saudi Arabia's state oil company Aramco will switch to the Argus sour crude index as the benchmark price for all grades of crude sold to the United States. Top OPEC exporter Saudi Arabia, whose pricing mechanisms are closely watched by oil markets, had used West Texas Intermediate crude prices published by Platts, a unit of McGraw Hill (MHP.N), as its benchmark for US crude sales. Aramco's new policy will be in effect for January sales to the United States. “The Argus index is calculated as a differential to the NYMEX light sweet crude settlement price,” said Robert Levin, CME's managing director of energy research and product development, noting that the Platts prices were not. “Because of that, we think this actually ties (the Saudis) to the WTI market more effectively and more closely, but in a way they want to be. There's a differential there and that differential is extremely important to them,” said Levin. The cash-settled contract tracking the Argus index would be launched before the end of 2009. The physical crude contract would be offered “in the near future,” Levin said. Levin was not ready to provide a precise delivery point location, but said it would be in the US Gulf Coast region. The NYMEX physical delivery futures contract would use Mars and Poseidon sour crude grades as benchmarks. “They are two major components of the Argus index,” said Levin, who noted that the NYMEX has made several previous attempts to launch a sour crude contract. Southern Green Canyon crude is the third component, according to an Argus press release. The US sour crudes in the Argus index are closer in specific gravity and acidity to the Arab Medium and Heavy crudes coming from Saudi Arabia. Cash crude traders said the move by Aramco made sense as a move to price its crude against the same type of crude it was competing against in the United States. West Texas Intermediate, the benchmark for the NYMEX light sweet crude contract, is lighter and sweeter than either the crude grades in the Argus index or most Saudi crude oil sent to the United States. The switch to the Argus sour crude index also allows the Saudis to insulate themselves from the gyrations in US oil futures caused by trading tactics that reflect dollar movements, analysts said. The NYMEX contract is the wrong grade of crude oil in the wrong location for Saudi crude.
