ICE sees spike in shipping fuel and wet freight derivatives trade activity

Trading in 0.5% Marine Fuel Oil (MFO) and Wet Freight contracts hit record levels this month, a year after the introduction of cleaner global shipping rules, the Intercontinental Exchange (ICE) said.

The International Maritime Organization (IMO), the United Nations shipping agency, implemented rules at the start of 2020 capping marine fuels’ sulphur content at 0.5% against 3.5% previously, prompting shipping and oil firms to invest billions to adapt.

“Just over a year on from IMO 2020 implementation, we are seeing record growth across our Marine Fuel and Wet Freight contracts as refiners, shippers and trading companies from every continent across the world turn to these products to hedge exposure to global oil and maritime markets,” said Jeff Barbuto, Global Head of Oil Markets at ICE.

Ahead of the introduction of cleaner shipping rules, the ICE launched a series of cash settled Marine Fuel products starting from February 2019, which settle against the S&P Global Platts’ physical MFO assessments.

They helped spur trading in Open Interest across Marine Fuel, which has grown to a record 274 million barrels equivalent as of Feb. 23, 2021 with traded volumes more than double levels seen a year ago, the exchange said.

Open Interest levels in Wet Freight futures and options – used to manage price risk associated with shipping oil – have also jumped, to a record of more than 105,000 lots, equivalent to more than 105 million tonnes, said the exchange.

“Wet freight markets have seen extreme volatility at times over the last year and we’re seeing customers using the futures contracts to hedge positions further out to protect themselves against any spikes in volatility in the future,” said Barbuto.

“In February, (calendar 2025 futures) trades in Wet Freight took place for the first time, reflecting how as liquidity grows, customers are comfortable taking positions as far out as 2025,” said ICE.
Source: Reuters (Reporting by Roslan Khasawneh; Editing by Susan Fenton)