Launching trading with deliverable futures contracts for URALS Russian export oil

According to experts, this is one of the most significant events in 2016

On 29 November 2016, St Petersburg International Mercantile Exchange (SPIMEX) launched trading with deliverable futures contracts for URALS Russian export oil.

Exchange contract should lay down the foundations of the new pricing mechanism for URALS oil through direct market pricing, without being tied to other oil benchmarks, as well as by overcoming the gap between the markets of physical and “paper” oil.

Achieving the necessary parameters of trading liquidity, the price indicator for Russian oil should become a benchmark and will be also used in off-exchange contracts. Proposals are being discussed on using this indicator in taxation and fixing customs duties.

“Russia demonstrates a high level of its technologies, particularly, the exchange ones”, emphasized Head of FAS Igor Artemiev at the official ceremony of opening the trading.

Head of the Antimonopoly Service said that this market pricing project, initiated by FAS, is supported by the Government and the President of Russia. It is being implemented upon the instructions of the Presidential Commission on the Fuel-and-Energy Complex and in line with the plan approved by Government. Plan execution is coordinated by the Exchange Committee established by the key regulators of the economic bloc of the Russian Government: FAS, the Bank of Russia and the Federal Tax Service.

The Chairman of FAS Exchange Committee, Deputy Head of the antimonopoly body, Anatoly Golomolzin pointed out that the parameters and conditions for deliverable exchange (futures) contracts are devised; preparation and training on the technology of exchange trading, clearing, supplying exchange trading, risk management and market-making procedures are provided. Regulations are adopted for cooperation between organizations of commercial (“SPIMEX” CJSC and RDK (CJSC)) and technological (“Transneft”) infrastructures to comply with logistics, export and position schedules in supplying oil based on the outcome of exchange trading. Oil companies are made ready for operations with deliverable futures contracts for exported oil.

According to Deputy Head of Anatoly Golomolzin, Russian experience in developing exchange trading with physical goods and derivatives meets the best world standards and expects the project on exchange trading with URALS export futures contracts to succeed. For instance, 15 – 17 million tons of oil products have been traded annually through the exchange for many years, trading with natural gas, liquefied hydrocarbon gases are being developed, etc.

Foreign participants have got direct access to trading in SPIMEX; therefore, the project on launching the export contract requires international support.

“It is essential that the project was developed under the frame of international cooperation between the antimonopoly bodies and financial regulators. It fully complies with the declaration of the International Working Group comprising representatives of 20 antimonopoly bodies from different countries, including Russia, Austria, Portugal, Germany, Kazakhstan, Ukraine, the US, the UK, approved in 2013 OECD Competition Committee and UNCTAD. The project also meets the Recommendations of the International Organization of Securities Commissions – IOSCO (an association of world financial regulators), supported by “G20””, emphasized Anatoly Golomolzin.

The interest towards new reliable world oil indicators is reinforced amidst expected pricing changes on global oil markets.  There is a common understanding of a high level of supplies reliability and stable quality of Russian oil, a considerable potential of the SPIMEX futures contract as a new price reference for URALS.

“Sustainable trading with URALS futures contract will enable to form a world benchmark for Russian oil. It will give objective market quotations for Russian oil on the outcome of trading”, stated Anatoly Golomolzin. In his opinion, developing the derivatives market and trading on the market of physical goods create additional opportunities for establishing Russia as one of the global financial centres.