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ICE to launch 0.5% futures contracts Feb 4 ahead of IMO 2020 sulfur cap

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ICE to launch 0.5% futures contracts Feb 4 ahead of IMO 2020 sulfur cap

London — The Intercontinental Exchange Thursday said it will launch 0.5% futures contracts in February in preparation for the global marine sulfur cap in 2020, settling against S&P Global Platts physical marine fuel 0.5% assessments.

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"[ICE] announced plans to launch new Marine Fuel 0.5% futures contracts in advance of the implementation of the 0.5% sulphur cap by the International Maritime Organization (IMO) in 2020," it said in a statement. "The new contracts are expected to launch on February 4, 2019, subject to completion of relevant regulatory processes."

The contracts will settle against Platts physical 0.5% assessments and include the following instruments; Fuel Oil Outright - Marine Fuel 0.5% FOB Rotterdam Barges (Platts) Future, Fuel Oil Outright - Marine Fuel 0.5% FOB Singapore (Platts) Future, Fuel Oil Diff - Marine Fuel 0.5% FOB Rotterdam Barges (Platts) vs 3.5% FOB Rotterdam Barges (Platts) Future, Fuel Oil Diff - Marine Fuel 0.5% FOB Singapore (Platts) Future vs 380 CST Singapore (Platts) Future, Fuel Oil Outright - Marine Fuel 0.5% FOB USGC Barges (Platts) Future, Fuel Oil Diff - Marine Fuel 0.5% FOB USGC Barges (Platts) vs USGC HSFO (Platts) Future.

The market has so far lacked a 0.5% hedging instrument and at present traders use ICE low sulfur gasoil futures, the fuel oil hi-lo spread -- the premium of 1% FOB NWE cargoes over 3.5% FOB Rotterdam barges -- and even crude futures to take positions in preparation for the IMO 0.5% sulfur cap.

"Our customers have expressed a strong desire for Marine Fuel 0.5% specific derivative contracts and our new contracts will allow market participants to hedge forward positions in an industry which today consumes more than three million barrels per day of high sulphur fuel oil," said Jeff Barbuto, Vice President of Oil Markets at ICE. "The contracts will operate alongside ICE's benchmark Low Sulphur Gasoil futures, fuel oil and LNG markets providing customers with a range of hedging tools to assist with the transition to the new regulations in 2020."

The move comes after the New York Mercantile Exchange said November 21 that it will list 11 marine fuel 0.5% futures contracts for trading on the CME Globex electronic platform from December 9, for trading from December 10. So far traders have been tentative in their approach to trading the instruments, saying they will wait for others to take the first position.

"[No one] wants to be the first to jump in there, it's the second mouse that gets the cheese," a fuel oil trader said this week.

Liquidity in 0.5% futures is as yet unclear, but traders point to increased activity through 2019 as more clarity has been provided, with physical demand for 0.5% marine bunker fuel likely to pick up towards the fourth quarter of next year.

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--Eleni Pittalis, eleni.pittalis@spglobal.com

--Tamara Sleiman, tamara.sleiman@spglobal.com

--Edited by Jonathan Fox, jonathan.fox@spglobal.com