ICE and NYMEX: two oil titans battling to win
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.
Filed under: legal by Specialist