World Bunkering > News > Autumn 2010 > Moving the market forward - online fuel trading

Despite a slow start to its fuel oil swap agenda, the online fuel trading Singapore Exchange is continuing to push the product. The swaps can be used as a means of locking in future supply at fixed prices. In May, the exchange announced the successful completion of the loading for all physical deliverable positions for its first SGX Fuel Oil 380cst (“SGX FO380”) futures contract.

The SGX FO380 futures contract, launched on 22 February 2010, aimed to provide an alternative online fuel trading hedging and trading tool for the Singapore fuel oil industry. The first contract month of April 2010 expired on 25 March 2010 with 131 thousand-tonne lots of fuel oil for delivery. All deliverable parcels matched by the Exchange were successfully loaded by end of April 2010.

The counterparties who participated in the April 2010 delivery include Hin Leong, ENOC Singapore and Glencore Singapore.

Ms Elena Sng, senior vice president, Clearing and Commodities Business at SGX said: “The deliveries in this first contract month bear testament to interest in the physical delivery aspect of the contract. We will continue to work closely with our market participants to meet the needs of the evolving market.”

Mr Tayyeb Al Mulla, ceo, ENOC said: “The successful delivery for the first contract month is a confirmation of SGX’s delivery mechanism. We are satisfied and hope that this will encourage greater participation in the contract.”

The successful completion of this contract follows reports in the shipping press that SGX’s 380cst fuel oil contract was “not working out”. At the time of writing, the annual report showing up to date figures for the trading of SGX fuel oil contracts has yet to be issued. However, an SGX spokesman told World Bunkering: “We are seeing trades from a variety of participants ranging from oil majors, oil trading companies, bunker suppliers and individual trading members.”

He added: “To facilitate trading during the initial period, there are market makers providing prices during active trading hours.”

SGX is targeting trading volumes of 3 million tonnes per month by the end of this year. However, the exchange says it expects relatively low volumes in the the early months of trading.

Navitas launches online fuel trading NR-X platform

Singapore was also the location for the launch of another product aimed at making it easier for buyers doing online fuel trading. In May, Singapore-based Navitas Resources officially launched its NR-X platform, an online fuel trading platform intended to trade spot contracts for bunker and marine fuels. Online fuel trading between a limited number of participants has been taking place since November, with a ‘major shipowner’ joining the online fuel trading platform in March.

“Players are looking for better ways to hedge bunker and marine fuel more efficiently and we are trying to encourage transparency and get a forward physical market one or two months out,” says Tom James, chief adviser to Navitas Resources. “We are discussing future developments with regulated exchanges and clearing houses regarding a derivatives market for these contracts.”

Shipping companies currently use the wholesale cargo swaps market for fuel to hedge their risk and there is basis risk between pricing the cargo market and the price charged in the port, says James. “Our focus is the delivered market for physical bunker and marine fuels to the ships from suppliers and there is interest from the industry to do this,” he says.

“The bunker and marine fuel market is large and so far it has not been given any real development on the exchanges so there is great potential,” says James. “We expect to see steady development on the online fuel trading NR-X platform.”

Unusually, contracts on the online fuel trading platform are available priced not only in dollars, but in World Currency Units (wocus). Bunkers are the first physical commodity in the world to be priced in wocus. A statement from the company behind the wocu, UK-based WDX Organisation says: “As bunker oil drives the majority of sea-going trade, it is a commodity of primary importance. Trading bunker oil in wocus rather than dollars is anticipated to allow companies to achieve maximum benefit from the wocu’s particular advantages, namely reduced exchange rate volatility and an effective partial hedging mechanism, reducing spot and forward inconsistencies in bunker oil pricing.”

Tom James commented: “We are very excited to have finalised the terms of the agreement with WDX regarding the wocu and look forward to launching wocu pricing for a range of physical commodities on our NR-X platform. We have no doubt this will give our online fuel trading platform a leading edge over those who do not offer the advantages of pricing in the wocu, especially given the large US$ currency concentration risk most companies in the commodity and energy sectors currently have to manage.”

According to the WDX website: “Conceived in 1996, formulated and calculated since 1 January 2000, the wocu was officially launched on 1 January 2010. The wocu is based on a basket of currencies that are qualified by the success of their economies – and not on politics, history or geography; its major claim, that it exhibits lower volatility than its components, has already been proven.

Michael King, ceo of WDX Organisation, said: “We believe this early adoption of the wocu basket is a key signal from the markets. The agreement reflects the requirement of market participants for currency neutrality in some, or all, of their activities. Utilising the wocu in commodity trading will create certainty in forward transactions, which in turn will drive down costs. A single currency arrangement would be hard pressed to reduce volatility in this manner.”

Aspect solution takes off

A perhaps somewhat more conventional solution to bunker management was released by one of Navitas’ partners, Aspect Enterprise Solutions in March. AspectETRM for Bunkering is a specialised version of its software as a service (SaaS) trade and risk management solution. According to the company, the programme is both comprehensive, combining all the core functionality required for bunkering, and very fast to implement, with installation times of typically weeks not months. The solution’s scalability makes it cost-effective for small operations right up to the heavyweights that dominate the world’s bunkering hubs.

“Bunkering operations have a rich choice of contending ETRM solutions so we think it’s highly significant that AspectETRM for Bunkering won three major deals, even before we formally launched the product,” says AES ceo Steve Hughes. One is a relatively modest sized trader and one is a major global player. “These two customers are at opposite ends of the spectrum in terms of size, yet their reasons for going with AspectETRM for Bunkering are the same – speed of implementation and affordability.” Three more customers have joined since March, and one of the existing users has expanded the scope of the solution, proving a real market demand.