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The Singapore Exchange (SGX) is reported to have met with a number of fuel oil trading firms this week to discuss the idea of creating a new fuel oil futures contract.

According to news agency Reuters, fuel oil trading companies Vitol, Glencore, Chemoil, Hin Leong and PetroChina, along with oil firms Shell, BP and Singapore Petroleum Co, bunker supplier Equatorial Marine and shipping firm Maersk met on Tuesday to discuss the potential launch of a 380-centistoke (cst) fuel oil contract.

The new SGX contract would reportedly be based on lots of 100 metric tonnes and traded on a free-on-board (FOB) basis.

SGX is said to have proposed two daily trading sessions - 9:00 am-7:00 pm and 8:00 pm-10:55 pm, with the 7:00 pm closing price as the day's settlement. The monthly settlement would be the average settlement price for the last five days of the month.

In an exchange environment, the buyers - ie bunker suppliers and shipowners - would have to invest capital upfront by putting up security deposits for their trades.

The fact that they also run the risk of not receiving the cargoes is a punt that many suppliers in Singapore may consider to be too precarious, especially in the current economic climate. A large number of local suppliers are independent, mid-sized firms with tight cashflows, so it may be difficult for SGX to incentivise them to participate.

The New York Mercantile Exchange (NYMEX) currently operates a similar Singapore 380-cst contract which is also sold in 100 metric tonne lots. The contract was launched in 2006, but is presently inactive due to poor liquidity.