IPE Crude and the International Market

The IPE (London's International Petroleum Exchange) Brent crude futures contract is still relatively young, having begun trading on June 23, 1988. Like the NYMEX contract, the IPE contract for Brent crude is based on 1,000 barrels with each price point worth $1,000. Unlike the NYMEX, it is cash-settled with an optional delivery alter­native and is based on the 15-day forward Brent crude market which has evolved into the world's most transparent and internationally traded forward market for crude oil.³⁴ Contracts are available for 12 consecutive months with liquidity being concentrated largely in the first three months. Thus, the ability to hedge long-dated crude oil is on the IPE is significantly more limited than on the NYMEX.

The IPE Brent futures contract is not nearly as liquid or actively traded as the NYMEX "equivalent." On a daily basis, volume tends to be roughly 20,000-30,000 contracts or roughly 1/4 of the NYMEX volume. Yet, the con­tract is a vital link in the trading of international crude and the overall Brent crude market. Dated (or spot) Brent is the terminology used to reference the cash market and is the most important price in international oil trade.³⁵ However, in the strict sense of the word, dated Brent is not exactly "spot" as many of the trades are for cargoes with several days' lead time to loading.

The advent of trading of the SIMEX contract in June of 1995 allows for greater access to trading of the Brent crude futures and this contract has a mutual offset arrangement with the IPE. While the IPE contract trades between the hours of 5:02 am and 3:15 pm EST, the SIMEX makes the contract available during the hours of 8:25 pm to 11:30 pm EST. Exhibit 10 depicts the exchange hours in the New York time zone for the NYMEX (including ACCESS^SM) the IPE and the SIMEX on a typical trading day. As illustrated, the only hour of the day during which crude oil does not trade on an exchange is between 3:15 and 4:00 pm.

Exhibit 10

	Midnight	8am	9:45am	3:10 pm	4:00pm		Midnight
NYMEX
		5:02am		3:15pm
IPE
SIMEX	1:30am 3:58am					8:25pm 1	11:30pm

Midnight 2am 4am 6am 8am 10am 12pm 2pm 4pm 6pm 8pm 10pm Midnight