Asia's oil futures trading needs western support

Asia's oil futures trading needs western support

SINGAPORE (AFP): Singapore's decision to permit western
exchanges to trade crude contracts in Asia would inject new life
into regional oil futures trading, analysts said yesterday.

"It's an implicit admission of Asia's inability to grow its
own oil futures contracts, but nevertheless is a shot in the arm
for the region's futures market," said Ng Weng Hoong, editor of
The Singapore Oil Report, a Singapore-based petroleum journal.

The Singapore International Monetary Exchange (SIMEX)
announced on Monday that New York Mercantile Exchange (NYMEX)
would extend its 16-month-old overnight ACCESS trading system
into Asia, the fastest growing oil market.

NYMEX had signed a letter of intent with SIMEX that would
place the electronic trading system in Singapore, the world's
third largest oil trading center behind New York and London.

SIMEX reached a similar accord nearly two months ago with the
International Petroleum Exchange of London Ltd. (IPE), which was
allowed to trade its highly successful North Sea Brent crude
futures on the floor of the Singapore exchange.

SIMEX officials said yesterday no dates have been fixed for
the launch of trade, which analysts believe could be early next
year.

While initial trading volumes in Singapore were likely to be
modest, the easy availability of Brent futures and NYMEX's West
Texas Intermediate was expected to jumpstart liquidity, Ng said.

Diminish

"Once these crudes are established as markers in the East, the
prospect of an Asian or even Gulf crude achieving leadership role
is likely to be diminished," Ng said.

Of the dozen or so contracts launched throughout the region in
recent years, only one -- for fuel oil in SIMEX -- continues to
trade credibly, and even then at a minuscule 530 contracts per
day in contrast with 160,000 a day on NYMEX, industry officials
said.

NYMEX is the world's largest oil futures exchange.

The reluctance of state-owned companies to hedge and the slow
pace of deregulation of Asia's oil sector were among reasons
attributed to the slow development of the region's futures
market.

Timothy Stuart, trading manager at Singapore-based Loius
Dreyfus Energy Asia Pacific Pte. Ltd., said SIMEX should be
focusing on developing price indices for indigenous crude and
products, which were trading over the counter in significant
volumes.

Stuart said if Singapore did not take the lead in developing
these futures instruments, then another location in the region
might take up that challenge to serve the industry.

"There is certainly a good opportunity for the development of
a futures contract with a physical delivery mechanism in middle
distillates or in Southeast Asian crude oil," Stuart said.

Industry officials said they had mentioned their support to
SIMEX for a physical delivery gas oil futures contract, but had
not received any response.

SIMEX president Ang Swee Tian said recently Asia's futures
market could develop gradually with the introduction of
successful contracts from London and New York through tie-ups
with the Singapore exchange.

Such links should be followed up by the introduction of Asian
contracts to the West through mutual offset and, eventually, the
takeoff of indigenous Asian contracts within the region itself,
Ang said.