news20091201reut5

[Top News] from [REUTERS]

[Green Business]
FACTBOX: NYMEX and ICE's long-standing rivalry
Mon Nov 30, 2009 12:52pm EST

(Reuters) - The world's biggest energy market-place the New York Mercantile Exchange (NYMEX) and IntercontinentalExchange, have long been fierce competitors.

NYMEX began crude oil futures trade in 1983 and became home to a light crude futures contract that has become the world's most liquid oil futures contract, representing the world's biggest energy consumer.

Brent crude futures began to be traded on London's International Petroleum Exchange (IPE) in 1988.

The IPE was bought by Atlanta-based IntercontinentalExchange in 2001.

Although less liquid than the NYMEX U.S. crude contract, Brent is used more widely as a benchmark on physical oil markets, where it is used for pricing around two thirds of the world's physical crude.

Brent futures volumes still lag those of U.S. crude traded on NYMEX, but they have risen strongly since the ICE became the first fully electronic energy exchange in 2005.

During a period of initial hostility to electronic trading, NYMEX, part of CME Group, launched a trading pit for open outcry Brent trade. The experiment was abandoned after it failed to wrest liquidity from more established ICE Brent futures.

NYMEX still has a Brent contract, just as the ICE has a U.S. crude contract, but Brent is far more liquid on the ICE and U.S. crude is much more heavily traded on NYMEX.

NYMEX also still has an open outcry pit in New York, but far more volume trades through its electronic platform Globex.

U.S. crude traded more than 13 million lots in October, a 13.2 percent rise from a year earlier.

NYMEX's Brent oil futures contract accounted for 1,051 lots in October. The volume marked 96 percent fall year-on-year.

Apart from the main U.S. crude futures contract, NYMEX's leading contracts are U.S. RBOB gasoline and heating oil.

RBOB traded 2.08 million lots in October, up by 43 percent from a year earlier, and heating oil 1.96 million lots, up by 20 percent, CME data showed.

CONTRACTS TRADED ON THE ICE

The ICE has a WTI contract, which traded around 4.36 million lots in October, a fall from 4.52 million lots a year earlier.

By contrast, Brent crude volume on the ICE grew by 7.3 percent to 6.9 million lots in October from 6.43 million lots a year earlier.

Like Brent, gas oil is regarded by many as a widely useful marker, which can be used for benchmarking heating oil and diesel.

Gas oil trade totaled 3.36 million lots in October, up 17 percent from 2.87 million a year earlier.

Brent and U.S. crude's future as the leading marker grades has been challenged by the launch of futures contracts on both NYMEX and ICE based on the Argus Sour Crude Index following a change in the way Saudi Arabia prices its crude.

NYMEX launched ASCI contracts earlier this month and will launch a physically deliverable U.S. Gulf sour crude contract as early as December 7 -- the day ICE plans to launch its ASCI contracts.

(Compiled by Barbara Lewis and Ikuko Kurahone)


[Green Business]
ICE and NYMEX: two oil titans battling to win
Mon Nov 30, 2009 12:53pm EST
By Ikuko Kurahone and Barbara Lewis - Analysis

LONDON (Reuters) - The world's two biggest energy exchanges are fierce competitors, but the likelihood is both will emerge as winners from the latest tussles for liquidity.

By some measures, the Atlanta-based IntercontinentalExchange has narrowed the gap on its bigger competitor the New York Mercantile Exchange, owned by CME Group.

NYMEX is still well ahead in terms of volume, but a chart on open interest, or the number of trading contracts not closed off, which is viewed as an important gauge of the health of an exchange, shows ICE gaining ground.

One factor has been the financial crisis, which triggered an exodus of fund money that had been concentrated on NYMEX and could head back there in the future.

"I think it was the deleveraging of last year which narrowed the gap," said Olivier Jakob of Petromatrix.

He said it was not clear whether uncertainty over limits on the size of trading positions, expected to be put forward in December by U.S. regulator the Commodity Futures Trading Commission, had also boosted the ICE.

Others have referred to a "regulatory arbitrage," meaning different rules would drive trade from one exchange to another to the ICE's benefit.

"Some non-U.S. companies did not want to come under CFTC regulation," said Christopher Bellew of brokerage Bache Financial. "The irony is that the ICE is just as American a company as the CME is."

Even if British regulator the Financial Services Authority (FSA), responsible for regulation of European contracts on ICE, does not follow the CFTC's lead, U.S. contracts traded on the platform, such as the U.S. light crude futures contract, would be subject to U.S. rules.

Given so much uncertainty, some players, who asked not to be named, said they would take out positions on both exchanges.

"We already trade Brent on ICE, so it would perhaps have been more natural to have WTI (West Texas Intermediate) on ICE, but we're going to use both the ICE and NYMEX," said one.

ARGUS SOUR CRUDE INDEX

As well as choosing where they trade U.S. crude futures or Brent, from December, dealers will face a new dilemma: where to trade the Argus Sour Crude Index after top exporter Saudi Arabia's decision announced in October to use it for pricing some of its crude.

Until now, Saudi Arabia has been selling crude for delivery into the United States at a differential to assessments by pricing agency Platts, a unit of McGraw Hill Companies Inc, closely linked to U.S. light crude.

Both of the exchanges were swift to respond to the change.

NYMEX introduced ASCI contracts earlier this month and said it will launch a physically-deliverable U.S. Gulf sour crude contract early in December. Around the same time, the ICE will launch cash-settled futures contracts tracking ASCI on December 7.

For some analysts, providing the option of a physical settlement could give NYMEX the edge.

But the ICE has also claimed victory. In an interview with Reuters, its Chairman and Chief Executive Jeffrey Sprecher noted Saudi Arabia had stuck to using a Brent Weighted Average (BWAVE), based on Brent crude futures, for shipments of Saudi crude into Europe and argued the U.S. benchmark was flawed.

The most liquid contract in the world, U.S. light crude futures, is based on West Texas Intermediate (WTI), a land-locked oil delivered into Cushing, Oklahoma.

Critics of the contract argue it tends to reflect inventories at the delivery point, rather than supply and demand in the major oil consumption center, the U.S. Gulf Coast.

Bob Levin of CME Group has not ruled out that ASCI could over time wrest liquidity from the main U.S. contract, but only by relying on its support.

"For now, sour crude contracts will need to lean on WTI for liquidity support. Not only is ACSI structured as a direct differential to the NYMEX WTI settlement price, the three ASCI component crude streams are each priced as a direct differential to the NYMEX WTI settlement price," he told Reuters.

Analysts also say NYMEX heating oil and RBOB gasoline futures reflect domestic fundamentals in the United States.

ICE and many traders laud the greater geographic flexibility, not just of Brent crude, but of ICE's flagship refined products contract gas oil, whose volumes have hit a record.

But ultimately, it can just be a matter of regional preference, which contract on which exchange traders prefer.

"There's not much difference (between ICE and NYMEX)," said Tokyo-based analyst Toshinori Ito of UBS. "It may really depend on individual traders which exchange they would support."

What nearly all agree is both will remain dominant as the smaller exchanges springing up face a huge challenge to compete.

"I'm not dismissive of the others, but for players who want serious liquidity, it has to be NYMEX or ICE," said Mike Wittner of Societe Generale.

(Editing by Sue Thomas)