ICE launches Middle East sour crude contract

IntercontinentalExchange will go head-to-head with the Dubai Mercantile Exchange (DME) by launching a sour crude futures contract based on Middle East production.

The ICE Middle East Sour Crude futures contract will begin trading electronically on ICE Futures, ICE’s energy futures subsidiary, on May 21, pending UK regulatory approval.

The ICE contract is cash-settled against the Platts Dubai physical cash price assessment, and will be in direct competition with the Dubai Mercantile Exchange’s (DME) physically-delivered contract, now due to be launched on June 1.

While the DME has not responded directly to the launch of the ICE Futures contract, it has argued in the past that the physically-delivered nature of its contract will allow it to succeed where previous cash-settled contracts have failed.

But Paul Wightman, head of oil futures for ICE Futures, claims that the decision to take the cash-settled route was based on customers’ preferences, and points out that the Platts price on which the contract is settled is itself physically-derived.

Both exchanges are hoping to succeed where several previous efforts have failed. ICE’s forerunner, the International Petroleum Exchange, launched an unsuccessful sour crude contract in the early 1990s. But according to Wightman, conditions are now more suitable for the introduction of a sour crude contract.

“There is now a very successful electronic trading environment,” he explains, “we have a global marketplace, whereas before markets were more regional.”

He rejects that notion that a successful sour crude contract might detract from liquidity in Brent trading, describing the new contract as “an extra tool”.

The success of ICE Futures’ WTI contract, launched last February, has also put the exchange in a better position to launch a sour crude contract, says Wightman. Exchange users will now be able to trade Brent, WTI and Middle East sour crude together on the same platform. The spreads between Brent, WTI and the Middle East sour crude futures contract will also be available immediately.

The Middle East is one of the world’s largest crude oil production regions with several key OPEC members based in the region. Approximately 70% of total Middle East crude exports are exported to Far Eastern buyers. The Middle East has over 60% of the world’s proven oil reserves.

The ICE Middle East Sour Crude futures contract will trade continuously for 22 hours a day – from 01:00 to 23:00 local London time (BST), or from 08:00 through 06:00 (following day) local Singapore time (GMT + 8 hours). Daily contract settlement will take place at 19:30 local London time with final settlement upon expiration at 09:30 local London time (BST) (16:30 local Singapore time, GMT + 8 hours).