HOUSTON -- West Texas Intermediate oil's 30-year reign as the benchmark for setting prices for North American crude grades could be coming to an end.

The WTI contract with the New York Mercantile Exchange for trading in light sweet crude goes back to March 1983. Cushing, Okla., was designated as the price settlement point since traders had already converged around the city's massive storage facilities as a market mover after the U.S. government lifted oil price controls in 1981.

Cushing's storage capacity has grown exponentially over the past decade to absorb rising imports. But that growth has hit a ceiling as sellers struggle to move crude from storage tanks to customers.

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Meanwhile, the oil industry is moving to develop the Houston Ship Channel as the future center for U.S. oil trading.

Some analysts expect NYMEX and most energy media to shift within the next two years to a "Houston Blend" or "Gulf Coast Crude" to determine the cost of a barrel of oil, with WTI moving to No. 2 in trading volume.

A shift would be expected to increase the cost of crude, by about $10 a barrel, but that is unlikely to raise the price of refined products or pump prices because refiners are already charging based on international rates.

While the shift to the ship channel isn't a shoo-in -- tradition favors continued dominance by WTI contracts -- a boom of investments in new storage capacity and pipelines running into Houston, not to mention the pipelines coming to carry crude out of Cushing and to Houston refineries, suggests the oil and gas industry wants it to happen.

"Even though Cushing has historically been the price index point, there are historical examples that it can change," said Harold York, vice president for downstream research at Wood MacKenzie.

York pointed to the Argus Sour Crude Index, a tool for pricing U.S. oil imports published by Argus Media that has been adopted as a benchmark by Kuwait and Saudi Arabia. Another example is the North Sea Brent crude oil index, which is younger than WTI but is now considered the international crude price indicator.

Meanwhile, NYMEX's owners appear to be laying the groundwork for a shift in the benchmark.

In December, CME Group announced that it would enter talks with commodities traders on its proposal to introduce a new crude contract. The product it wants to see traded would be for crude delivered to Enterprise Products Partners' coming ECHO crude storage terminal, designed to be the terminus of a pipeline Enterprise is building to move crude out of south Texas' booming Eagle Ford Shale production zone.

To accommodate that development, Enterprise recently announced it had purchased more land around the ECHO site, allowing for the expansion of the project's crude storage to 6 million barrels. That company isn't shy about its intentions.

"This additional acreage builds on our plan to establish ECHO as the premier Gulf Coast delivery hub for growing North American crude oil production, providing shippers with the opportunity to maximize the value of their production," Enterprise Vice President A.J. Teague said in a release.

Teague said the aim is to see ECHO become the main regional pricing point. But market watchers see the expanding oil storage going up all along the Houston Ship Channel and the CME Group-Enterprise deal as possible reasons for traders to rush into that contract once it's issued.

ECHO will be tied into the nation's largest refining complex, and into two high-capacity oil pipelines, including the Seaway pipeline.

Cushing prices lag

Seaway was originally built to supply Cushing with crude coming from Houston's port. But booming domestic oil production has resulted in a supply glut at Cushing, depressing prices and angering the producers, which are unable to sell their oil at the international Brent contract rate, which sometimes ran $30 a barrel higher than WTI in recent months.

That price differential has seen the role of the traditional WTI blend -- a mix of crude from the Midland-Odessa area, eastern New Mexico and Oklahoma -- lose its luster as a pricing benchmark in the eyes of the U.S. oil industry.

In response, in November, Enbridge Inc. and Enterprise announced that they would partner to reverse Seaway's flow, sending crude from Cushing to Houston instead.

The announced Seaway reversal was initially seen as an effort to further tie WTI to Brent prices. But the subsequent ECHO announcement changed the picture.

The idea of an emerging benchmark settled at the ship channel was only reinforced when TransCanada yesterday announced plans to proceed with plans to build a segment of the controversial Keystone XL pipeline that will send crude from Cushing to the Houston area (Greenwire, Feb. 27).

TransCanada plans to eventually link Houston with Alberta's oil sands region. The company recently told Canadian media that it may even build sections of the Keystone XL pipeline to North Dakota's expanding Bakken Shale crude oil production zone.

Infrastructure is struggling to keep up with rising production in North Dakota, and the company is reportedly beginning to see a market for sending Bakken crude via Keystone XL to the Gulf, even though TransCanada initially envisioned the project as primarily a conduit for oil sands crude.

Oil industry executives say the coming influx of crude to the ship channel demands that even more storage tanks be put up to cope.

"We certainly anticipate the potential need for additional storage," said Ken Owen, chief financial officer at Oiltanking, a global storage operator. "We announced a project in November, for example, and our competitors in this region and in the broader Gulf of Mexico, not just in Houston, have also announced expansion projects."