Singapore SGX launches Middle East crude oil futures contract

Singapore Exchange Limited (SGX) on Tuesday launched a Middle East Crude Oil (Meco) futures contract - the third attempt to introduce crude oil futures contracts on the derivatives market in the past 12 years. The two earlier contracts were unsuccessful and have since been delisted, The Straits Times reported.

Futures contracts are exchange-traded agreements to buy or sell a given commodity such as oil at an agreed time and price.

With the Asia-Pacific region importing about 22 million barrels of crude oil per day from the Middle East, oil traders and consumers have long been seeking a way to protect themselves from the volatility of international oil prices.

Oil prices in recent months have been affected by tensions over the potential military conflict between the United States and Iraq, although the timing of Meco's launch is not linked to this, SGX officials said.

SGX head of derivatives trading Jimmy Ang said at the launch that 'Asia needs a good and successful crude oil futures contract to create the price transparency and liquidity to complement the over-the-counter oil market so that we get a fair price for our oil'.

He added: 'Asia is paying some US$20 million more a day, every day for the last five years for its oil imports. So, why not Middle East Crude Oil futures?'

The SGX Meco contract is denominated in US dollars per barrel and will be traded in lots of 1,000 barrels. It was designed in cooperation with the Tokyo Commodity Exchange (Tocom) and follows similar contract specifications as the Tocom Meco futures.

However, the Japanese Meco contract that was launched in September last year is denominated in yen per thousand liters.

SGX Meco contracts will be settled in cash on the last day of each trading month based on the monthly average of daily Dubai and Oman crude oil prices issued by Platts, a leading provider of energy trading and prices data. (*)