London wrenches oil trade crown from New York

By David Sheppard

NEW YORK | Thu Feb 3, 2011 7:21am EST

NEW YORK (Reuters) - London is set to overtake New York as the
largest center of crude and oil product futures trade this year,
signaling a shift in power as the capital benefits from soaring
demand in Asia and mounting concerns over the usefulness of key U.S.

The IntercontinentalExchange ICE.L, headquartered in Atlanta but
known for its European contracts, has increased its share of the
major crude and product futures trade to just shy of 49 percent in
2010, having doubled its volume in five years.

Trade on long-term rival the New York Mercantile Exchange has also
expanded thanks to burgeoning interest in commodities from traders
and investors alike -- but not as quick. NYMEX volume rose about 17
percent last year; ICE surged 31 percent.

ICE (ICE.N) is now set to claim top spot just 10 years after it
bought the ancient International Petroleum Exchange IPE.L with
backing from some of the world's largest banks and energy traders,
counting Goldman Sachs (GS.N) and BP (BP.L)(BP.N).

The shift in power is not completely unexpected: traders have been
warning for several years that huge investors could go money out of
the United States to avoid a tough regulatory crack-down now
underway. What's surprising is that most participants say that's not
the main reason for the shift.

"Rising volume and open interest on Brent is a clear signal from the
managed risk segment of the market that it's becoming 'the barrel of
choice'," says Michael Guido, director of hedge fund energy sales at
Macquarie bank in New York. He expects more clients to favor it in
the coming years.

"Its key attractions are its physical peg and a direct link to Asian

And while ICE has benefited from the well publicized attraction to
Brent crude as a better global benchmark than U.S. WTI contract, it
has also gained from a huge rise in trade of its gas oil contract
used for hedging (and speculating on) distillates such as diesel and
jet fuel.

Soaring demand in Asia for industrial fuels helped boost gas oil
trade by 45 percent on ICE in 2010 alone. ICE trade of Brent was also
up 35 percent while its WTI contract volume rose 13 percent.

David Greely, head of energy research at Goldman Sachs in New York,
said the ICE gas oil contract based on delivery into northern Europe
gave it a key advantage over NYMEX.

"Gas oil is the most exposed of any oil product future to emerging
market growth," Greely said. "It's heavily leveraged to what's
happening in Plates and other emerging economies in Asia, where
diesel is in high demand."

By contrast, NYMEX saw volume on its heating oil contract drop by a
fifth last year due to uncertainty around looming changes to the
contract's specification.