Are WTI's days over?

At the end of October, Saudi Aramco announced their decision to abandon the Platt's WTI-based benchmarks in favor of Argus' new sour crude / U.S. gulf coast index, largely out of fears for future capacity limitations at Cushing. This begs the question of how substantial the current and future shift in momentum will be away from WTI-based benchmarks.

I initially believed the short-term effect of this change would likely be minimal, particularly given that there is no real liquid alternative to the NYMEX/CME WTI contract. Additionally, the debate around Cushing as a suitable delivery point has been going on for years.

However, I am beginning to re-evaluate my medium-to-longterm thesis based upon the following recent data points:

(1) Shifts in open interest suggest a subtle trend away from WTI is already underway: there has already been a subtle shift away from trading activity in WTI to Brent this year, as confirmed in the open interest figures.

(2) New ETF instruments will open additional avenues to route capital away from WTI: new news that UNG / USO's parent, the United States Commodity Fund, has announcement a potential launch of an ETF tied to the Argus sour crude index. While this likely won't replace USO, the dramatic growth of USO is a testament that there may be substantial demand for this type of product, and;

(3) New CME futures contract will have the largest impact on liquidity shifting away from WTI: CME's expectation to likely launch new contract at the end of the year to capitalize on the success of the Argus Index. It would be interesting to see the curve dynamics and level of contango that come about under this new contract, as this may not only present some interesting relative value trades with WTI dynamics, but if the contango is more favorable, perhaps we will see a shift out of USO and into the new ETF products.

As crude has been used by investors as less of a physical asset, and more of a global financial asset in recent years, it would seem reasonable that the commodities physical limitations would ultimately lead to natural market frictions. After all, there is only so much storage, and as such, Oklahoma cannot continue to be the best entry point forever.