November 7, 2011 / 3:25 PM / in 6 years

ICE to launch new Brent NX crude contract December 5

LONDON (Reuters) - Derivatives exchange ICE said on Monday it would launch its new Brent crude oil futures and options contract on December 5 with a first trading contract of December 2012 rather than February 2013 as initially proposed.

The new ICE Brent contracts, to be called New Expiry or NX Brent, are being launched to reflect a change in the way the underlying physical crude oil market in the North Sea is assessed and following consultation with market participants, the IntercontinentalExchange Inc ICE.N said.

NX futures and options contracts will have an expiry calendar based on 25 days instead of 21 days, mirroring an adjustment in how the forward cash crude market is assessed by oil price assessment service Platts.

ICE said in a statement the existing ICE Brent crude futures and options contracts with expiry months up to and including November 2012 would continue to operate in their present form and would be the exchange’s only Brent contracts for those expiry months.

The existing Brent contracts and the new NX Brent contracts would trade in parallel for an undefined period, it said.

ICE said it would review the transition to the new contracts during the second quarter of 2012 “to consider whether any additional measures to encourage the migration of open interest would be appropriate.”

ADVANTAGES

ICE conducted a consultation period of several weeks with oil companies, traders and brokers to get feedback on its proposals and amended its initial proposal slightly, bringing forward to first trading month by two months.

The exchange said the amended plan had several advantages:

“It will allow participants to hedge 2013 calendar exposure entirely on the basis of the new ICE Brent NX Contracts,” ICE said, adding the change would bring forward the first contract expiry date to November 5, 2012, which would be an easier first expiry date for the market to manage than January 4, 2013.

“And it will provide for an earlier alignment with the 25-day timetable in the North Sea physical market,” ICE said.

Platts, a unit of McGraw-Hill MHP.N, sets a price for Dated Brent, which is used to price up to 70 percent of the world’s oil cargoes and forms part of the underlying market for Brent futures.

But supply of the four North Sea crudes currently used to set dated Brent -- Brent, Forties, Oseberg and Ekofisk -- also known as BFOE, has been falling steadily due to natural declines in oilfields.

Platts said in September it would change the basis for assessing BFOE from January 2012 to address concerns about its dwindling supplies. The change is designed to increase the number of cargoes included in the dated Brent assessment.

From January 6, 2012, Platts will use crude cargoes loading in the next 10-25 days to work out the price of dated Brent, rather than the 10-21 days at present, aiming to make more cargoes count toward the value of the benchmark.

Christopher Johnson; Editing by Alison Birrane

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