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.