Cross Atlantic Crude Index Overview
Version 1.2
June 2020
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1.      Introduction
The surge in US oil shale production and subsequent growth in crude and product exports has caused structural changes in Atlantic trade flows.  At the same time, Europe’s demand profile has changed, with a switch away from gasoline despite gasoline production remaining steady.  As a result, the Atlantic basin, always a key trading area, has become a bellwether of global trade - albeit one that is under-served in terms of price discovery, which remains very much focussed on one side of the Atlantic or the other.  

In response, General Index has created a number of Cross Atlantic Indexes (CAXs). These are a blend of European and American products and crude oil benchmarks that reflect the fluid nature of trade where, for example, a gasoline cargo maybe be on a European pricing basis, but hedged on American gasoline futures, or  a US crude is sold on a US basis and then resold on a Brent basis. The Cross Atlantic benchmark series recombine widely recognized indicators including Brent, WTI and products futures with physical benchmarks such as European gasoline.

The flat price Cross Atlantic benchmarks provide a vital value indicator on the market state across the Atlantic as continents on both sides are inextricably linked in supply and demand.  

The benchmarks provide a ‘reading’ of market conditions at the market closings in Asia, Europe and the Americas.

1.1.        The Need for new global benchmark indicators
GX has observed the impact that divergences in value can cause when market technicalities trigger erratic behaviour in one time zone. But rarely would such technicalities impact two zones simultaneously.  As a result, by looking at the Atlantic basin as a whole, we can provide robust and stable indicators that reflect a greater volume than an individual region and are also time normalized on both sides of the Atlantic.   These indicators are constructed in a manner that avoids the sudden surges or falls near expiration of the contracts – by reflecting the values of the front month until the last two days of trade, after which the indicators will move to the next month’s data.  

GX publish the underlying values, as traded, but also normalized to dollars per barrel, in order to support arbitrage calculations and provide a measure of the general market state in the Atlantic.

All cross Atlantics are expressed in dollars per barrel. Products are also databased in dollars per tonne and cents per gallon.

2.    How it works

2.1.        Description
The Cross Atlantic Crude Index recombines flat price for crude futures using widely used indicators across both sides of the Atlantic and therefore provides a genuinely complete view of the conditions in the basin.  

The early rolls in the series ensure that problems caused by temporal or regional negative pricing or by sudden surges in price that are unreflective of the market are either eliminated or minimized. The blended nature of a global benchmark, therefore, provides a better representation of global conditions.

The graph below reflects the price of one of the crude oil cross Atlantic benchmarks,  from April to May 2020 and shows the volatility the market has sustained but at the same the Cross Atlantic Crude index shows how there is safety in numbers by sidestepping either negative prices or the out of bounds peaks and valleys which may be cause by technicalities in one market but are not generally reflected in both sides of the Atlantic basin.
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3.    Key Technical Details
Full technical details are described in the latest version of the Index Factsheet.
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3.1.        CAXC Component Rolls
GCX is composed of global indicators providing the geographical coverage of the index. Two futures contracts provide the value underpinning of the Index: CME Light Crude Oil and CME Brent. The contracts have different expirations: CME LCO is five day prior to the 25th of the month and CME Brent expires at the close of the month.  

CAXC contracts roll ahead of the underlying futures in order to avoid, or at least minimise, disturbances caused by the expirations; most notably seen on April 20, 2020 when the front month CME contract plunged to a negative value as low as minus $40.00/bbl.  
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3.2.        Weighting of the Components
The futures contracts underpinning the Index are weighted in a manner that represent the role they play in international and their domestic markets.  

Historically, Brent has been the dominant indicator of crude value globally but has seen its role diminish as US influence has increased.  The LCO - the primary indicator for the Americas - is playing an increasingly important role across the world as rising volumes of US crude are exported to other jurisdictions.    Meanwhile, the production of the Middle East is increasingly tied into Oman as traded on the DME.  

For purposes of the Cross Atlantic Crude Index, GX is taking the values of Brent and WTI into consideration on an equal basis, meaning that each contract provides 50 percent of the total value of the index.

3.3.        Time valuation methods
The underlying values of the components shall be determined by GX based on the value of the last trade prior to the assessment time. In the event that a single product was not traded in the prior minute, an assessed value is produced based on the value relative to other related products when both were last traded. In the event that there are no trades or a paucity of trades, GX determines the relevant value based on its expertise and knowledge of markets. GX could base its determination, but not solely, on bids and offers in futures markets, relational values in other futures indicators and/or bids and offers in related markets.

3.4.        Expiration Date
The contract is an evergreen instrument published daily and reflects the continuous trading value of key global crude commodities and the index series has no expiration date. While the CAXC instrument, due to its evergreen nature, has no termination date; CAXC should be seen as having inherent monthly components leading to the CAXC having publication attributes from the first of the month to the end of month which then lead to values in January, February, March and so on.  

3.5.        Physical delivery
The futures contracts are deliverable according to the specific rules of the exchanges underpinning the trading of the contracts.  

The contracts underpinning the CAXC index have, if necessary, physical delivery. Chiefly, CME WTI has routinely physical delivery. The CAXC, however, has no delivery and is a financial instrument which reflects the value of the contracts.

4.    Publication
The CAXC is published by GX and made available to its customers via direct feeds, emails or any other method suitable to the customer. The indexes will also be released through other electronic vendors.

The Index is displayed to 2.d.p. on the GX website and is published to 4.d.p via all other distribution mechanisms.  


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