Asia faces hurdles in energy futures contract

Asia faces hurdles in energy futures contract

SINGAPORE (AFP): Asia's dream to have a popular indigenous
energy futures contract to manage oil-price risks is being
frustrated by key Western exchanges which have entered the
market, an industry journal said.

The Singapore Oil Report, a leading industry monthly, said a
vibrant informal over-the-counter (OTC) market among western
banks, oil companies and brokers was also stunting the growth of
a major Asian oil futures contract.

The New York Mercantile Exchange (Nymex) and London's
International Petroleum Exchange (IPE) have established oil
futures trading links in Asia.

IPE has been marketing its Brent Crude Futures contract
through the Singapore International Monetary Exchange (Simex)
since June through a mutual-offset link, while Nymex's West Texas
Intermediate deals began through the Sydney Futures Exchange
(SFE) in September.

The mutual-offset system allows for positions opened at the
IPE or Simex to be closed out and cleared at the other, while the
Nymex-SFE computerized link provides for trades to be cleared in
the United States.

These links have allowed the western exchanges to gain a
toehold on the Asian market, making it more difficult for
regional exchanges to have their own contracts, said the report,
quoting industry officials, brokers and analysts.

The lucrative 17-million-barrels-per-day Asian oil futures
market is growing at three to four percent annually, said the oil
report, due for release this week.

Asia's most successful contract, Simex's fuel oil, is on its
deathbed after a mostly mediocre showing since its debut in 1989,
the report said. Previous Simex attempts at launching Dubai crude
and gas oil contracts also faltered.

"The western exchanges can only grow stronger as the trade now
recognizes their contracts as world benchmarks," said a broker
dismissive of Simex's attempt to become a center for paper oil
trade.

"The longer Simex and other Asian exchanges are not in the
picture, the less important they will become," he said.

In China, entire exchanges, not just their contracts, have
expired after a brief flowering, while in Japan, energy futures
have not moved beyond the drawing board despite years of
discussions among industry participants.

The report also quoted some traders from foreign oil companies
here as saying that they preferred using the OTC market as Asian
exchanges suffered from low liquidity and poor confidence.

"The increased liquidity generated by the OTC trade went
mostly to Nymex and IPE, leaving only the crumbs for Simex and
other regional exchanges," the report said.