Cleartrade Exchange to list bunker fuel swap contracts

More than 370 million tonnes of bunker fuel consumed annually

Oil, hand Oil, hand

The following is from Cleartrade Exchange...

Cleartrade Exchange (CLTX) has today announced the listing of three Fuel Oil single Swap contracts, which allow bunker traders and users to execute swaps of as little as one metric tonne of fuel oil via the CLTX OTC commodity and freight derivatives platform.

The new contracts are the widely-traded Singapore IFO180, IFO380 and Rotterdam barges 3.5% sulphur, with settlement against the Platts Fuel Oil Price Assessment; they are available to trade from today.

The addition of these new contracts builds on the Cleartrade Exchange strategy of delivering more effective price discovery, building liquidity and facilitating best execution in OTC derivatives markets. It also extends the ability of the members to manage risk across a suite of interlinked swaps and options, including dry bulk freight, iron ore, steel, coking coal and fertilizers.

“Adding these contracts is a response to demand from our members and the wider market to enhance our range of tradable asset classes. We have already demonstrated with the Virtual Steel Mill concept that we can respond to emerging market needs,” said Richard Baker, CEO of Cleartrade Exchange “The introduction of the highly liquid bunker fuel contracts to our regulated marketplace is the latest demonstration of our commitment to developing these products further.”

Marine bunker fuel is a highly developed market, with over 370 million tonnes consumed annually by the global shipping industry. Its tight correlation to crude oil prices mean that the proportionate share of fuel to daily operating costs can be above 50%.

With the heightened volatility in crude oil as well as supply shortages and civil unrest in the Middle East, we can expect bunker costs to be the greatest burden for the shipping industry for the foreseeable future. A capesize operator looking to hedge a full year contract at 20 days a month could save a substantial amount. Using the average monthly bunker price during 2011, a charterer that hedged his fuel exposure of approximately 12,000 mt in the prior year for $570 could see a saving of $1.36 million over the year on that one vessel alone. The importance of bunker hedging cannot be overlooked.

Until now, end-users have lacked a practical, cost-effective way of managing this price risk. With the Fuel Oil Single Swap tailored to efficient hedging as well as trading potential, Cleartrade expects the new contracts to become quickly adopted by its existing members already active in related sectors.

Morten Erichsen, President NOS Clearing ASA, added: “The advent of the Fuel Oil Single Swap on Cleartrade Exchange addresses the requirements of a large sector of the market which need to trade this commodity in parcels of hundreds rather than thousands of tonnes. For the benefit of our members NOS Clearing is happy to expand our 6 month old single swap service to include clearing services for the Cleartrade Exchange marketplace enabling market participants to execute and clear these contracts efficiently and cost-effectively.”

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