Shift to cleared trade could unblock oil markets

LONDON (Reuters) – Exchange-style clearing offers a way forward for the multi-billion dollar over-the-counter market in oil derivatives that has seized up because of the credit crisis.

Volumes of over-the-counter (OTC) trade slumped in September after the crisis in the banking sector made participants nervous about counterparty credit risk.

“The physical oil market is still operating normally but the paper market is experiencing problems,” said Ian Taylor, Chief Executive of independent oil trading firm Vitol.

“OTC trades have gone down dramatically during this economic crisis and as traders exit from commodities, volatility increases,” he said at this week’s Oil & Money conference in London.

NYMEX Clearport has provided a solution for some participants, with a large number of OTC trades in oil being cleared on its system.

Reuters