Nymex to Begin Auctions to Place One-Day Bets on Oil and Gas
2005-07-14 16:08 (New York)


By Matthew Leising
     July 14 (Bloomberg) -- Energy traders and investors will be
able to bet on one-day swings in crude oil and natural gas prices
when new options on futures are introduced next week by the New
York Mercantile Exchange, the world's biggest energy marketplace.
     Daily auctions will allow investors to buy and sell options
in the morning based on where they expect oil and gas futures to
settle at the end of the day. The options, based on prices for
the oil and gas contracts closest to expiration, are set to begin
July 18.
     The exchange's partners in the auctions are brokerage house
ICAP Plc and investment bank Goldman Sachs Group Inc. The over-
the-counter options will be traded electronically on ICAP's web-
based system and will be cleared by Nymex. Goldman Sachs will act
as a market maker to provide liquidity.
     ``This is a new instrument to manage risk,'' Bill Cassano,
vice president in Goldman Sach's economic derivatives group, said
in an interview. ``Every time there is a new tool, it makes the
markets more efficient.''
     In 2002, New York-based Goldman Sachs introduced similar
auctions allowing investors to bet on changes in U.S. economic
data, and last year instituted weekly auctions tied to oil and
gas inventory reports.
     The 30-minute auctions will take place the morning of each
trading day. The crude oil auction will be held from 8:30-9:00
a.m. New York time and the natural gas auction will be from 8:45-
9:15 a.m. Floor trading for both markets starts at 10 a.m.
     The results of each morning's auction will be known before
the beginning of Nymex floor sessions. Such pricing elements
might be useful for traders, said Craig Pirrong, a professor of
finance at the University of Houston.
     ``The biggest potential value of the product is the price-
discovery feature,'' Pirrong said. ``It might be a way of giving
the marketplace a better price signal earlier in the day.''

                          Use by Hedgers

     For manufacturers or other industrial consumers of oil, such
as airlines, one-day bets on prices would be a waste of time, he
said. Large consumers or producers of energy ``are going to be
more interested in prices over a long period of time,'' Pirrong
said. ``It seems more like a product that's more attractive to
speculators than to hedgers.''
     An option is a contract that provides the right, but not the
obligation, to buy or sell a commodity, security or other
financial instrument such as a futures contract.
     Nymex has traded options on crude oil since 1986 and on
natural gas since 1992, spokesperson Anu Ahluwalia said.

--Editor: Banker.

Story illustration: For news on exchanges see {NI EXC <GO>}. To
graph crude oil futures over the past year, see
{CL1 <Cmdty> GPO D <GO>}. For more oil stories, see {OTOP <GO>}.

To contact the reporter on this story:
Matthew Leising in New York at (1) (212) 617-1151 or
mleising@bloomberg.net.

To contact the editor responsible for this story:
Robert Dieterich at (1) (212) 617-4485 or
rdieterich@bloomberg.net.

[TAGINFO]
IAP LN <Equity> CN
78948Z US <Equity> CN
GS US <Equity> CN

NI NRG
NI CMD
NI OIL
NI GAS
NI CRUDE
NI OILPROD
NI GASMARKET
NI EXC
NI NYMEX
NI US
NI FUTURES

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