Japan oil companies to launch Internet exchange

Japan oil companies to launch Internet exchange

TOKYO (Reuters): A group of leading Japanese oil firms and trading houses are planning to start an Internet-based oil futures market to facilitate risk hedging against volatile oil prices, a Japanese business daily said on Saturday.

The new market, to be called J-Oil Exchange, will be set up by a group of 17 firms including four major Japanese oil companies and six of Japan's largest trading houses, with trading to start as early as July, the Nihon Keizai Shimbun (Nikkei) financial daily said.

The new online exchange will aim to provide low-cost risk hedging opportunities for major trading houses and oil companies, a function which existing markets such as the Tokyo Commodity Exchange do not always serve well due to a lack of liquidity and focus on retail investors, the financial daily said.

The participating firms, which include Showa Shell Sekiyu KK, Japan Energy Corp, Mitsubishi Corp, and Mitsui & Co Ltd among others, will aim for 200 billion yen (US$1.63 billion) turnover for the exchange in the first year.

The 17 firms, which also include U.S. investment bank Morgan Stanley and South Korean oil company SK Corp, will set up a joint venture in Singapore as early as June, with capitalization of about 400 million yen, to serve as headquarters of the exchange.

The exchange will be based offshore to be free from Japanese regulations related to commodity exchanges, and actual trading could start as early as July, the financial daily said.

The online futures market will be available for gasoline, kerosene and other petroleum products, with trading to be limited initially to member firms with real demand for petroleum products and exclude speculative trading.

The exchange will handle trading of futures contracts with maturities of up to six months, with positions to be settled in cash before expiry rather than through the actual delivery of underlying products, Nikkei said.