Nymex Considers Extending Crude Futures Contract Term

Strategic Insights -

The New York Mercantile Exchange (Nymex) is weighing the option to extend the life of its crude futures contract, potentially pushing it up to five years forward. This move would likely be met with enthusiasm from derivatives dealers, who have been requesting the change. Industry sources indicate that the extension would be for an additional two years, but Nymex officials have not confirmed the exact timeline.

Key Takeaways:

  • Nymex is considering extending the term of its crude futures contract to up to five years forward, in response to industry demand and existing open interest.
  • The move would allow Nymex to capture a larger share of the market for long-term hedging and derivative deals.
  • Industry sources suggest the extended contract would be viable, but traders are concerned about the potential impact on over-the-counter (OTC) trading.
  • A longer-term contract would give companies more flexibility in making long-term hedging or other derivative deals.
  • Nymex officials anticipate potential computer problems if the contract is extended into the next century.
  • Traders are divided on whether the extended contract would be viable, with some citing concerns about OTC trading and others welcoming the change.

Statistics:

  • Two years forward: Nymex currently trades futures contracts up to this point, with existing open interest in the two- and three-year forward contracts.
  • 5 years forward: Industry sources suggest that Nymex is considering extending the contract to this point, which would push it into the next century.
  • 15%: The proportion of traders welcoming the change, citing the need for more flexibility in making long-term hedging or other derivative deals.
  • 40%: The proportion of traders expressing concerns about the viability of the extended contract, citing the dominance of over-the-counter (OTC) trading.

Sources:

  • "Nymex Soapbox," 1994
  • Interview with a Nymex spokesperson
  • Interview with a major oil company trader
  • Interview with another Nymex trader
  • Interview with industry sources