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CME launches new Brent crude futures contract

12.12.2011  | 

CME Group on Monday launched a new Brent crude futures and options contract in a bid to challenge IntercontinentalExchange Inc.'s (ICE) dominance in the market. The first tradable month on CME's Brent 25-day contract will be February 2012, while the first month for ICE's Brent NX contract is December 2012.

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By SARAH KENT

CME Group on Monday launched a new Brent crude futures and options contract in a bid to challenge IntercontinentalExchange Inc.'s (ICE) dominance in the market.

However, analysts said that CME was unlikely to seriously dent ICE's hold on the Brent market, even if it initially attracted more interest because of its earlier start date.

The first tradable month on CME's Brent 25-day contract will be February 2012, while the first month for ICE's Brent NX contract is December 2012.

"On the new contract at least they could start with a little more liquidity than in the ICE contract," said Olivier Jakob, managing director of Swiss consultancy Petromatrix.

"But I still think it's always the same when you launch a new futures contract. Liquidity is in the old contract and it takes a while to move to the new one," he added.

The ICE's decision to have the first trading month of its new contract a year out followed a period of consultation with customers, the exchange said.

"ICE Futures Europe believes that the end of 2012 is the earliest that the Brent market could change to a 25-day basis expiry calendar," a spokeswoman for the ICE said. "This is because it is important to ensure a full year's notice for Brent market participants, including those in the swaps (OTC) market."

In the week since ICE launched its Brent NX contract, trade has been very limited, traders said. A spokesman for CME said that "a couple" of trades had been completed on the CME 25-day contract Monday.

The move to new contracts by CME and ICE come ahead of planned changes to the way Brent is assessed in the physical market.

Brent is a closely watched global benchmark for oil prices, but over the years declining production volumes in the North Sea oil fields where it is found have caused concerns over price fluctuations.

Now Platts, the McGraw Hill Co. (MHP)-owned company that calculates the price of Brent on the physical market, intends to extend the period over which it assesses the oil price to 16 days from the current 12 to increase liquidity in the benchmark.

The new contracts from the ICE and CME have different expiry dates from the exchanges' longer-standing Brent contracts and are intended to allign the futures market with the time-frame over which the physical prices is assessed.


Dow Jones Newswires



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