UPDATE: CME's Sour Oil Futures Contract Sees First Trades

CME Group Inc. (CME)'s sour crude futures saw their first trade Tuesday, after recording no activity in its debut.

On Monday, CME's New York Mercantile Exchange and competing exchange operator IntercontinentalExchange Inc. (ICE) both introduced contracts meant to complement the Argus Sour Crude Index, a price assessment recently adopted by Saudi Arabia for oil sold in the U.S.

The new contracts track a lower-quality oil than the widely traded light, sweet crude futures, which act as a global benchmark to set crude prices. The move by the Saudis has some market participants predicting that Argus-linked derivatives could eventually grow into a new pricing benchmark.

That process is expected to be slow, however, with many traders wary of entering a market with little or no liquidity. CME's contract and ICE's two offerings saw no activity in their first day.

The first trade was for 50 contracts for April 2010 delivery on Nymex. The transaction was conducted as a "spread" to West Texas Intermediate, with sour futures at a $1.50 discount, said Dan Brusstar, director of energy research at CME, speaking in an online seminar about the new contract.

A spread trade involves taking a long position, or bet that prices will rise, in one market, and a short position on falling prices in the other, in order to capitalize on changes in the price difference between the two.

- By Brian Baskin, Dow Jones Newswires; 212-416-2453; brian.baskin@dowjones.com

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