ICAP gets physical in energy trading

LONDON, June 1 (Reuters) – ICAP, the world’s largest inter-dealer broker, is moving into physical energy trading, hiring a team of crude oil traders, and aims to start gasoline futures trading, its energy head said on Wednesday.

Paul Newman, managing director of ICAP Energy, said that his business could bring more transparency to the traditionally opaque physical market.

“We want to create liquidity and price transparency in all our business models …and we think we can improve transparency in the physical markets too.”

U.S. regulators are scrutinising over-the-counter trading and some authorities would like more trade done via exchanges and in the futures market.

He said ICAP has hired two people from Tullett Prebon and the aim is to add at least another three by the autumn.

“As far as oil is concerned we are just a derivatives house, but we are making a concerted move to get closer to the physical side of oil, particularly on the crude side, the BFO side. That’s a new brand for us.”

Brent, Forties, Oseberg and Ekofisk make up the North Sea BFOE crude oil benchmark, which is used to value around 20 million bpd of crude in the Atlantic basin, a figure equal to almost a quarter of daily world supply. Newman said his brokers were looking at Forties cargoes and the 21-day programme.

He is also looking at other physical markets, but said a product like jet fuel was too small and tied up by specialist houses.

“But there are some areas where the physical side gets close to the paper side — biodiesel, for example, is closely related — and I would hope to find our way into that,” Newman said.

“It stands at the crossroads of agris and energy and there is an increasing move towards substitution.” He envisages another team of five to staff this and said in total he expects to have made six to eight hires by year end.

He added that he sees gasoline futures as an interesting market to get into and is looking to make suitable hires.

ICAP’s True Quote offering, delivered over the ICE platform, allows clients to see ICAP’s over-the-counter oil product prices. “I would like to find my way into gasoline — it fits perfectly. Maybe through True Quote we can do things that we haven’t been able to do in the past.”