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Catherine Ngai/MEDILL

Crude Oil prices hit an 18-month high of $87.09 Tuesday on the NYMEX.


CME Group forges Canadian oil partnership, signals international growth

by Catherine Ngai
April 07, 2010


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Continuing its push into international markets, the CME Group Inc. announced an agreement last week with Alberta’s Net Energy Canadian Daily Index to trade swaps for heavy crude oil. The contract, along with other recent agreements with Japan’s Nikkei 225 futures and India’s National Stock Exchange, signals CME’s continued interest in forming global partnerships.

The licensing agreement with Calgary-based Net Energy Inc. allows brokers to participate in crude oil futures swaps on the trading floor of the New York Mercantile Exchange and through the CME ClearPort clearinghouse. Trading and clearing started April 1.

The price of a crude oil futures contract reached $87.09 Tuesday, the highest since October 9, 2008. Prices are up 9.4 percent this year.

The agreement is timely because of high oil prices and the growing popularity of oil contracts among investors, said Joe Raia, CME Group managing director of energy products and services.

Raia stressed that this new agreement is open to all brokers in the marketplace whether they trade in the futures market or over-the-counter.

The agreement was one year in the making and came about when CME clients requested listings of Canadian heavy crude oil contracts. Once the need was apparent, Raia got in touch with Net Energy.

“It was just logical. We were trying to find a way, in commercial terms, for licensing,” Raia said. He added that many CME clients have connections to the Calgary market. 

Crude oil from Western Canada has been a vital resource for the U.S. over the years. According to numbers from the U.S. Energy Information Administration, Canada is the biggest exporter of crude oil to this country, with a total of 2.1 million barrels transported per day in December 2009.

“The credit meltdown pushed a lot of the market players to the sidelines or reduced them out of transactions they were doing,” said Tim Gunn, chief executive officer of Net Energy, in an interview.

“This is a good timing for some of the producers to hedge.”

As trade agreements expand across borders, more key market players have stepped in. Since the agreement, Gunn has received calls from Tokyo and London inquiring about new agreements.  “The more liquid we can make the Canadian market, the better for everyone,” Gunn said.

Earlier in March, the CME Group announced a cross-listing arrangement with the National Stock Exchange of India that includes license agreements covering benchmark indexes for U.S. and Indian equities.

This means that the S&P CNX Nifty Index - also known as the Nifty 50 - the leading Indian benchmark index for large companies in the Indian economy, will be made available for trading at the CME. The license is exclusive to the CME Group and is in addition to the existing arrangement between the Singapore Exchange Ltd and the India Index Services & Products Ltd.

“This [exchange] is the best in the world,” said Gary Hufbauer, senior fellow at Peterson Institute for International Economics in Washington, D.C.. “CME is in a way sitting on top of the world in terms of its business model. This is extremely strong service that the U.S. exports.”

CME Group also announced expanded electronic trading hours starting April 12 for the dollar-denominated Nikkei 225 futures that will give market participants worldwide nearly 24-hour access to the benchmark contracts listed at Chicago Mercantile Exchange and traded on the CME Globex platform.

Due to the time difference, futures contracts traded at the Merc are currently available only while the Japanese equity market is closed.

“There’s a real demand for this service in other countries. Their expansion into Japan, India, is to me all good. They are the frontier for providing technology that is very useful service to lots of service and companies,” Hufbauer said.