Iranian Oil Exchange
                 …Declaration of War?

Oil exchange battle shifts East as volumes grow
Daily Times

SINGAPORE: The global war for oil exchange dominance spilled onto a new battlefield this year, with the Intercontinental Exchange Inc. (ICE) slowly eroding its US rival’s hegemony in Asian-hours activity.

ICE has captured a growing share of the sliver of futures trade that takes place as European and US dealers sleep. This is helped by its robust electronic platform, a new US crude contract, growing risk management demand in Asia and a natural bond between its main Brent crude futures and Asian markets.

But the New York Mercantile Exchange (NYMEX) is poised to strike back next week, when it launches trade on the much-lauded Globex system that will eventually replace its ageing electronic ACCESS platform and unveils details of a new sour crude futures contract that could be the best fit yet for Asian traders.

As commodity markets and prices rapidly grow with the influx of investors and hedge funds, more players are executing orders during Asian hours, a traditionally quiet time despite the advent of nearly 24-hour electronic oil trade over a decade ago. While volumes are difficult to determine, traders watching their screens on Asian time agree that activity has crept up.

“Volatility overnight has definitely increased a lot. In the early days of ACCESS trading, the market would sit where it was until traders in London came in,” says John Brady, an overnight broker for ABN AMRO in New York. They say that ICE’s all-electronic Brent futures contract, which in the past typically lay idle until European traders settled into their desks, now usually trades from the moment it opens

While volumes are still tiny, the exchanges are hoping the Asian market will be a key growth area. On Friday, 147 lots of front-month ICE Brent crude and 205 lots of front-month gas oil were traded. NYMEX front-month crude typically trades over 3,000 lots by then, less than one-twentieth of its daily total, and most of that occurs in late-afternoon US time, shortly after the exchange’s noisy open-outcry pit closes, dealers say.

Asia still lags: Rigorous daytime futures trade would be new for Asia, which consumes about a third of the world’s oil but has failed to foster an indigenous contract, leaving dealers heavily reliant on more opaque and less liquid over-the-counter derivatives, or forced to watch foreign markets late into the night.

Most refiners in China and Japan, producers in Australia or traders in Singapore still transact most of their business during more liquid European or US hours, when spreads are narrower.

But demand for Asian trade is growing as financial players such as pension funds in Japan and the Middle East rush to catch up with their Western peers to ride on a three-year price boom. “With China emerging, Japan coming back, there is a whole new pool of investors in Asia,” says Tony Nunan, assistant general manager of risk management at MitsubishiCorp

Globally, as in Asia, NYMEX keeps the upper hand for now with daily oil futures trading volumes double that of ICE. The Tokyo Commodities Exchange’s yen-denominated crude contract sees about a tenth as much trade and is not widely used outside Japan.

Both Atlanta-based ICE, an upstart electronic exchange founded less than a decade ago, and the 134-year-old NYMEX, which bills itself as the world’s biggest physical commodities exchange, recorded all-time record volumes in May.

Growth in Asia: Some link ICE’s growth in Asia to the unexpectedly successful launch of its WTI contract in February, putting it head-to-head with NYMEX’s flagship product. ICE’s US crude allows players to more easily and cheaply trade Brent/WTI spreads.

The ICE WTI contract has captured some 25-30 percent of all WTI futures trades since its launch, though NYMEX volumes continue to grow as more money is poured in the energy sector. Higher volatility and more arbitrage trading opportunities also draw in more speculative parties, including banks such as Britain’s Standard Chartered Bank Plc and Merrill Lynch, which have reopened Singapore offices in the past year. “Higher volumes on Brent come from people trading Dubai or products. They used to trade WTI and have switched, creating a virtuous circle. The more liquid Brent becomes, the more traders will trade it,” a trader with a US investment bank said.

Nymex response: The NYMEX, which aims to go public later this year, will attempt to answer ICE’s challenge next week by launching an Oman crude contract, hoping to lure Asia’s conservative refiners who price about 12 million barrels per day of Middle East crude off Oman and Dubai. The Dubai Mercantile Exchange (DME), a joint venture between the NYMEX and Dubai Holding, will announce details of its contract next week ahead of a fourth-quarter launch. Oman’s endorsement of the contract earlier this year has breathed new life in the contract as it could encourage neighbouring Gulf producers, often sceptical of derivatives, to change their pricing basis.

NYMEX’s energy futures contracts will also begin trading next week on the Chicago Mercantile Exchange’s (CME’s) Globex system, considered superior to its ACCESS trading platform. reuters