When it comes to trading in the oil markets, it’s all about liquidity. And, when it comes to measuring how liquid a futures contract is, open interest is one of the key indicators used by market participants. Common trading patterns display the highest volumes and open interest levels in the contract months closest for delivery, with volume reducing as the contract months go further out the curve.
The chart below displays volume and open interest for ICE Gasoil futures, where most volume and open interest is held in the prompt months. Due to the high levels of commercial end-user participation in this market, the contract shows consistent liquidity and hedged positions out to 2021, with the June and December contracts in particular being popular hedging months.
ICE Low Sulphur Gasoil Futures Forward Liquidity
Volume and Open Interest as of 31 March 2017
Launched in 1981 to help European oil refiners and producers hedge their exposure to price fluctuations in refined oil products, ICE Gasoil is the world’s leading middle distillate benchmark for the oil market today. It is a physically delivered futures contract with diesel delivered in barges in the ARA (Amsterdam, Rotterdam, Antwerp including Flushing and Ghent) region, and it’s used as the pricing reference for all distillate trading in Europe, Asia and beyond.
"The ICE oil market leads in liquidity on virtually all metrics,” says Mike Davis, Director, Market Development, ICE. “Traders rely on ICE Gasoil to hedge their exposure to diesel prices, which is the largest component of distillate markets because of the deep liquidity throughout the curve. That includes consistently high multi-seasonal levels of open interest from 2017 to 2021 and tight bid/offer spreads on screen."
ICE Low Sulphur Gasoil contract achieved a daily volume record of 766,054 contracts on 1 November 2016. Volume in ICE Low Sulphur Gasoil-related contracts, such as the ICE Low Sulphur Gasoil/Brent Futures Crack and the ICE Heating Oil/Low Sulphur Gasoil Futures Spread also achieved daily records of 57,890 contracts and 11,942 contracts, respectively. The strong growth in ICE Low Sulphur Gasoil futures volume is driven by rising hedging demand from European refineries to meet winter diesel specifications and increasing hedging activity in cross-Atlantic diesel arbitrage flows.
ICE Gasoil Liquidity Compared to Other Markets
The chart below shows the open interest of ICE LS Gasoil futures contracts compared to open interest in the RBOB and Heating Oil contracts of another primary exchange.
Open interest in ICE LS Gasoil is more than twice the combined open interest of the RBOB and Heating Oil contracts.
End User Participation
End user participation in ICE Gasoil has continued to increase as a result of the deep liquidity and hedging benefits offered by the contract and the continuing relevance of its physical basis to the underlying market with its migration to low sulphur.
ICE Low Sulphur Gasoil Commitment of Traders Report - as of March 2017
Entities with exposure to the underlying physical market for the commodity which use the futures market to hedge the risks associated with such exposure. “Commercial” participants. Examples would include oil exploration and drilling firms, specialist commodity trading firms with physical exposures, producers, exporters/importers, coffee roasters, cocoa processors, sugar refiners, food and confectionary manufacturers, millers, crushers. utility companies who consume oil to generate power.
Swap DealerEntities dealing primarily in “swap” or other Over The Counter (“OTC”) transactions in the commodity in question and who use the futures market to hedge this exposure. Examples would include investment banks and other complex financial institutions.
Entities managing futures trading on behalf of clients; investment firms. Examples include hedge funds, pension funds, registered US commodity trading advisors or commodity pool operators.
Every other reportable trader. Examples would include proprietary (multi-asset) trading houses, algorithmic traders and local traders.
This is a balancing figure and consists of the total reportable long, short and spreading positions subtracted from the overall open interest figure for the commodity.
As a result, the ICE Gasoil futures contract has seen long-term success, displayed in the chart below.
The Widest Offering of Cracks & Spreads
"The strong growth in our ICE Gasoil futures complex is due in part to our comprehensive range of oil products, including hundreds of spreads and the ability to trade the gasoil crack," says Davis. “The Low Sulphur Gasoil / Brent Futures Crack, for example, is the most traded of its kind and enables traders and hedgers to manage price risk for middle distillates against a global crude oil benchmark, which helps manage the price risk linked to refinery profits.”
In addition to the gasoil crack, there are more than 50 unique spreads in the ICE oil complex that include low sulphur gasoil as one leg of the contract. These spreads offer the ability to manage gasoil price risk against crude oil, biodiesel, other types of diesel, heating oil, and more.
ICE Gasoil Products
The ICE Low Sulphur Gasoil Futures Contract is designed to provide users with an effective hedging instrument and trading opportunities.
A monthly cash settled future based on the difference between the ICE daily settlement price for Low Sulphur Gasoil 1st Line Future and the ICE daily settlement price for Brent 1st Line Future (in bbls).
A monthly cash settled future based on the difference between the Platts daily assessment price for the Diesel 10ppm FOB ARA Barges and the ICE daily settlement price for Low Sulphur Gasoil Futures.