The Rise in U.S. Exports and a Crude Oil Benchmark

What you'll read in this issue:

• WTI's role in?global crude oil pricing
• How the Prospective Plantings report shapes agricultural markets
• What unemployment metrics reveal about the state of the labor market
• U.S.-EU relations and the cross currency basis
• Why gold’s bull run could continue

TOP STORY

The Growing Importance of NYMEX WTI

The lifting of the U.S. crude oil export ban in 2015 transformed North America into a leading global oil supplier.

Cushing, OK: Since the 1980s, Cushing, Oklahoma, has been a key hub for crude oil trading in North America.

• The pipeline system channels crude oil from Western Canada, the Rockies, Bakken, Permian and regional plays into Cushing, where it can be stored, blended or delivered to local refineries and onto the Gulf Coast.
• In 2024, Cushing was home to 98 million barrels of crude oil storage capacity, making it the largest single hub in the world.

A 40+ Year Benchmark: The NYMEX WTI Light Sweet crude oil futures contract has been around for 42 years, serving as the benchmark for U.S. oil prices and underpinning the prices of consumer goods like gasoline, diesel and propane - and the price of all types of crude oil around North America and even overseas.

Fluctuations of the price of crude at Cushing via WTI futures can many times be the main driver of fluctuations in the price of crude oil produced, traded or exported across North America.

Going Global: Given the meteoric rise in North American exports, international use of WTI continues to grow. Trading volume of WTI originating outside the U.S. hit a high of 37% during 2024, up from 29% year on year, and the majority of new participants in both WTI futures and CME’s WTI Houston futures came from outside of the U.S.

? Read more about what growth in U.S. crude exports means for WTI futures.

FEATURED ARTICLE

Preparing for the Prospective Plantings Report

The Prospective Plantings report, next slated for release at 12:00 PM ET (11:00 AM CT) on Monday, March 31, 2025, provides an important view into the upcoming crop year.

Background: Prospective Plantings, also known as Planting Intentions, is an annual report released by the USDA on the last business day in March. It reports on the season’s expected planted acreage for principal crops including corn and soybeans and also contains production data for the old crop. Compiled from a farmer survey regularly covering over 75,000 participants, Prospective Plantings is considered to be the early planting season’s most important view into the upcoming crop year.

Market Movement: Discrepancies between market expectations ahead of the Prospective Plantings report and its actual numbers can have implications for supply and demand dynamics in agricultural markets.

• Going into last year’s Prospective Plantings report, Bloomberg median polling pinned Corn acreage at 92 million acres.
• When Prospective Plantings reported only 90,036,000 acres, Corn futures shot up.?
• New crop (December 2024) futures rose as the national supply for the coming crop year was now assumed to be smaller than expectation, and old crop (May 2024) futures rose as last year’s grain was now assumed to be more valuable in light of the smaller-than-expected coming year.

Why It Matters: Last year, the 2.13% discrepancy between corn acreage estimates and the Prospective Planting report contributed to a rise in Corn futures prices. The Prospective Plantings report plays a crucial role in shaping market expectations for the upcoming crop year, and Weekly options offer market participants one way to manage uncertainty around its release.

? Read more about the upcoming Prospective Plantings release.

INSIGHTS

A Closer Look at Unemployment Metrics

Every month, the Bureau of Labor Statistics (BLS) reports unemployment rates and payroll changes. How much do these numbers really tell us about the state of the U.S. labor market?

Background: A single report, known as the “jobs report” or the Employment Situation Summary, can have a big impact on global markets and shape the decisions of companies worldwide. Two key surveys make up this report: the Establishment Survey and the Household Survey.

Understanding Unemployment: The BLS categorizes the Household Survey data into six unemployment indices, from U-1 to U-6. There are two that many closely watch:?

• U-3, the official unemployment rate, includes people who are not working, have searched for work in the past four weeks and are available to work. This is the widely accepted international definition of unemployment.
• U-6, a broader measure, includes part-time workers who want full-time jobs and those who have given up looking but are still available. U-6 offers a more comprehensive and nuanced view of the labor market.

Why It Matters: When unemployment rises, U-6 usually increases more rapidly, indicating more widespread labor market challenges. By understanding both U-3 and U-6, business leaders and policymakers can better navigate the complexities of the labor market, identify emerging trends and develop strategies that address the broader economic landscape.

? Read more about the insights that the unemployment rate can offer.

How U.S.-EU Relations Could Impact the Cross Currency Basis

The CME EUR/USD Cross Currency Basis Index (X-CCY) tracks the nearest forward starting 3-month IMM period and can provide insight into relative changes in demand for either USD or EUR.

Background: The Euro Short-Term Rate (€STR) and Secured Overnight Financing Rate (SOFR) not only provide the interest rate used to borrow money in their respective regions, but the spread between the two can reveal trends or preferences emerging in the foreign exchange market. Since June of last year:

• The Three Month SOFR-€STR spread has both narrowed from 175 basis points to 100 basis points and subsequently re-widened to over 200 basis points. A higher spread is partly a function of Central Bank policy, but may also imply that USD liquidity is tighter than euro liquidity; a lower spread, the opposite.
• The X-CCY Basis Index has ranged from -13 basis points to 2 basis points. A X-CCY Basis Index value near zero means that interest rate markets and FX markets are aligned in their expectations of forward FX prices.

Gaining Insight: The daily correlation between these two measurements is 0.753 over this period, suggesting a moderately strong relationship between the SOFR-€STR spread widening and the X-CCY Basis Index narrowing. Monitoring the X-CCY Basis Index could give insight into potential risks or arbitrage opportunities tied to the SOFR-€STR spread.

Looking Ahead: Any change in U.S. and EU trade relations could affect euro and U.S. dollar money markets, and therefore the EUR/USD cross currency basis. If policies create tension between inflation and economic growth in both the U.S. and EU, it could make it harder for the respective monetary policy makers to set the level of short-term interest rates that would both contain inflation and enable economic growth.?

? Read more about how policy changes could impact euro and U.S. dollar money markets.

Can Gold’s Rally Continue?

Global instability, central bank purchases and AI demand could continue to impact gold prices.

Background: Gold has experienced a notable bull run and prices have reached new highs this year. A variety of factors could support its ongoing rally:

• A growing U.S. budget deficit, and by extension an increasing national debt, risks undermining confidence in the economy, which could in turn increase investors’ appetite for safe haven assets like gold.?
• Gold could find further support from increased policy uncertainty in the U.S.
• Outside of the U.S., purchasing trends are still expected to remain positive for gold going forward.

Defying Correlations: Gold traditionally has a negative correlation with the U.S. dollar, as a strong dollar makes gold purchases more expensive for overseas buyers. However, this correlation has uncoupled recently, with both the U.S. dollar and gold increasing in value last year – the former on the strength of the U.S. economy and the latter on expectations of interest rate cuts and ongoing global uncertainty.?

What About Silver?: The gold-silver ratio remains at relatively high levels by historical standards. The ratio, which measures the price of an ounce of gold divided by the price of an ounce of silver, stands at around 89. Historically when the ratio has been above 80, silver has gone on to enjoy a strong rally, which could mean silver still has plenty of runaway should gold continue to perform.

? Read more about the factors driving gold’s rally.

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