Singapore Exchange Limited (SGX) is set to launch a fuel oil futures contract in the first quarter of next year, according to
Magnus Bocker, the exchange's Chief Executive Officer.
A fuel oil 380-centistoke futures contract (FO 380 Contract) in the port of Singapore would be launched first with the possibility of SGX also developing a 180-centistoke contract depending on how the market responds, market sources said.
The new SGX contract would be based on lots of 100 metric tonnes and traded on a free-on-board (FOB) basis.
The key features of the contract that relate to physical delivery are as follows:
1. Delivery Facilitated by the Clearing House
The Clearing House will match buyers and sellers after taking into account the quantity, installations for delivery, delivery dates and methods of delivery to the extent reasonably possible. The minimum size for delivery will be 2,000 Tonnes.
2. Performance Deposit and Security
To ensure that buyers and sellers fulfil their delivery obligations, buyers and sellers will post a Performance Deposit (PD) with the Clearing House. Upon delivery by the seller, the Clearing House will require a security from the seller for application in the event of any disputes arising from the fuel oil delivered.
3. Performance Guarantee
The buyer’s and seller’s respective Clearing Members will guarantee the performance of payment and delivery obligations in accordance with the SGX Clearing Rules and Specifications.
4. Use of Letters of Credit
Letters of credit may be used for the posting of PD and payment.
SGX is said to have proposed two daily trading sessions - 9:00 am-7:00 pm and 8:00 pm-10:55 pm, with the 7:00 pm closing price as the day's settlement. The monthly settlement would be the average settlement price for the last five days of the month.
Earlier this year, the Singapore Exchange (SGX) was reported to have met with a number of fuel oil trading firms to discuss the creation of the new fuel oil futures contract. Companies reported to have attended the meeting were said to include Vitol, Glencore, Chemoil, Hin Leong and PetroChina, along with oil firms Shell, BP and Singapore Petroleum Co, bunker supplier Equatorial Marine and shipping firm Maersk.
The SGX 380-cst contract announcement came only one day after the
Singapore Mercantile Exchange (SMX) announced that it has received in-principle approval from the Monetary Authority of Singapore (MAS) to operate a cross-border multi-product commodities exchange.
The SMX expects to launch as many as 31 commodity products. Nine of these have already been approved by the MAS. It exchange aims to start trading in the first quarter of next year.
The new SGX 380-cst contract would follow a number of similar fuel oil futures contracts developed previously.
The New York Mercantile Exchange (NYMEX) currently operates a similar Singapore 380-cst contract which is also sold in 100 metric tonne lots. The contract was launched in 2006, but is presently inactive due to poor liquidity.
The International Maritime Exchange (IMAREX), an Oslo-based exchange for trading of maritime-related derivative contracts, offers Singapore 380-cst FOB and Singapore 180-cst FOB contracts in lots of 1,000 metric tonnes per month, 3,000 tonnes per quarter and 12,000 tonnes per year.
IMAREX also provides three other bunker-related contracts: Fuel Oil 3.5% FOB Barges Rotterdam, Fuel Oil 1% FOB Cargoes NWE and Fuel Oil US Gulf Coast No.6 3.0% Sulphur FOB.
In October 2006, another exchange, the Dubai Gold and Commodities Exchange (DGCX), launched its own Fujairah fuel oil futures contract for high sulphur 380-cst fuel oil (4.5% sulphur) in 100-tonne lots.
Meanwhile, the Shanghai Futures Exchange (SHFE) operates a 180-cst fuel oil contract for lots of 10 metric tonnes. According to data from its website, SHFE sees average trading volumes of around 10-15 million lots per month.