PLAN FOR CENTRAL EUROPEAN EXCHANGE FOR OIL FUTURES GETS MIXED RECEPTION

PLAN FOR CENTRAL EUROPEAN EXCHANGE FOR OIL FUTURES GETS MIXED RECEPTION

A planned central European futures exchange for sour Urals crude and gas oil, presented to several companies at a meeting in Budapest earlier this month, met with a guarded - if not skeptical - reception.

Officials at several companies operating on the high-sulfur crude market in Europe questioned the practical need for a separate futures contract for sour crude, even though some of them felt the exchange would be a valuable instrument if it could be made to work successfully.But sources were generally pessimistic about the exchange's chances of attracting enough trader participation to make it liquid and free from manipulation from a few dominant players.

Hungarian oil trading company Mineralimpex is one of the project's promoters. Lajos Alacs of Mineralimpex said four working groups had been set up to plan the structure and clearing mechanism for a futures market for Urals crude and gas oil.

At a meeting next spring the groups will report back on the feasibility of the contracts. The dollar-denominated contracts would be traded at the Budapest Commodity Exchange.

The Urals contract would be based on delivery through the Druzba (Friendship) pipeline that connects Russia with central Europe, in recognition of the unreliability of seaborne exports from Russia's Black Sea ports and from Ventspils in the Baltic, Mr. Alacs said.

A main delivery point would be the Hungarian refinery of Szazhalombatta. But several alternative delivery points are envisaged, for instance the Polish border, he said.

Yet one of the West European consumers who attended the conference fears that a Budapest Urals market might be easily manipulated by a monopolist transporter (Russia's pipeline operator Transneft, whose participation is essential to the project) or possibly by a small number of central European users. "I think there are good intentions, especially from the Hungarians . . . but I and those delegates I spoke to feel there are problems," he said.

Fears of the administrative chaos in Russia and of uncertain Russian legislation governing foreign trade will also have to be overcome.

Even if eventually successful, the exchange is likely to remain confined to providing a market for Urals crude, and a kind of benchmark for the central European market. The wider need for a benchmark that could reflect high-sulfur crude fundamentals better than Europe's present low-sulfur crude market, Brent, is unlikely to be met by an exchange in Budapest, oil analysts said.