East sour crude oil is the type of oil that is extracted from the Middle East countries, such as Saudi Arabia, Kuwait, Iran and Iraq. This region has more than 60% of the world’s proven oil reserves. The distinctive feature of this crude oil is that it is high in sulfur and other impurities. As a result, East sour crude oil is difficult to refine into various distillate products, especially unleaded gasoline.
East Sour Crude Futures: Basics
East sour crude futures are standardized contracts in which a buyer agrees to take delivery of a specific quantity of east sour crude oil at a predetermined price and date from the seller. The East sour crude futures market enables traders to:
- hedge against adverse movements in oil prices. Companies and even individuals can benefit from hedging
- speculate on the movement of East sour crude oil prices. Crude oil futures are extremely popular among big financial institutions and retail traders alike.
East Sour Crude Futures: Trading
Trading of the Middle East sour crude futures takes place at the Intercontinental Exchange (ICE). The ICE launched this derivative on May 21, 2007.
- Low liquidity
- Contracts with high spreads
- High risk
The ICE Middle East sour crude futures contract is an electronically traded product. The underlying asset of this futures contract is the crude oil sourced from Dubai, Oman and Upper Zakum (originating in Abu Dhabi).
The ICE Middle East sour crude futures contract is cash-settled against the Platts Dubai physical cash price assessment. Platts Dubai is the leading benchmark for east sour crude oil in the over-the-counter (OTC) markets.
With the start in trading in the ICE Middle East sour crude contract, the existing benchmark for the sour grade of crude and that for Brent and WTI traded together on the ICE’s electronic trading platform. As a result, traders and speculators can trade spreads between the futures contracts for Brent, WTI and East sour crude oil and benefit from cross margins.
East Sour Crude Futures: Contract Specification
The specifications for East sour crude futures are:
Trading Hours: Trading opens at 23:00 Sunday night London local time, 18:00 New York time and 06:00 Singapore time.
Units of Trading: Traded in lots of 1,000 barrels.
Minimum Price Fluctuation: The minimum fluctuation is one cent per barrel, or a tick value of $10.
Maximum Price Fluctuation: No limit to maximum fluctuation.
Contract Listings: 37 successive months are listed by the exchange. Contracts for the calendar year and quarter are also listed.
Last Trading Day: Trading ceases at 16:30 local Singapore time (08:30 GMT/09:30 BST) on the last trading day two months prior to the contract month.
Clearing: The Clearing House guarantees the financial performance of all ICE Futures contracts registered with it by its clearing members. All ICE Futures Member companies are either members of the Clearing House or have a clearing agreement with a member who is a member of the Clearing House.
Settlement: Mid East sour crude futures is settled with cash against the mid-point of the bid/offer prices for the relevant contact month in Dubai. This price is assessed after the close of the Singapore market at 16:30 local time.