On 6th August 2019, APEX successfully facilitated the first Exchange of Futures for Physicals (EFP) for the APEX Fuel Oil Futures Contract FO1909. A total of 3000 MT of 380cst Fuel Oil was transacted through the EFP facility, as part of APEX’s commitment to fulfil the different needs of the Fuel Oil Industry participants. Since its listing on 11th April 2019, the Average Daily Volume (ADV) has been around 26,000 lots (260,000MT) and Open Interest was around 5,500 lots (55,000 MT). The contract is a new hedging and investment tool for industrial players, such as Ship Owners, Fuel Oil suppliers, Refineries and traders.
As recent Fuel Oil spot prices experienced large fluctuations, Ocean Energy and a local trader engaged in the Exchange of Futures for Physical (EFP) of APEX380 Fuel Oil Futures Contract, converting 300 lots of FO1909 Contracts into 3000 MT of physical Fuel Oil. Subsequently, the Fuel Oil was sold to Sinopec Fuel Oil (Singapore) Pte Ltd.
APEX is the third exchange approved by the Monetary Authority of Singapore with the “Approved Exchange” and “Approved Clearing House” license. To date, APEX has four listed contracts, comprising of Energy, Agricultural and Financial products. In addition to EFP, the delivery methods of APEX contracts include the APEX Warehouse Receipt Delivery, FOB Delivery and cash settlement.
In light of the IMO2020 regulations, both the Energy and Shipping Industries are expected to face huge challenges from the potential volatility of Fuel Oil prices. In order to meet the market demand, APEX is planning to launch a Low Sulphur Fuel Oil (LSFO) Futures Contract. APEX is in the midst of discussions with major international oil companies and is expected to launch the contract in the near future.
The Exchange of Futures for Physicals ("EFP") shall refer to the procedure by which the Parties who hold the contracts of the same delivery month enter into a physicals sales and purchase agreement through negotiations, close their respective futures positions at the price described therein and exchange the payments and physicals of the corresponding quantities.
From the perspective of global market practice, EFP is commonly used among industrial participants, as it allows both parties to agree on the delivery terms, including: delivery location, quality specifications, date and time of delivery. Through the EFP method, both participants can expect to see a significant reduction in delivery cost.