Mid East Sour Crude Futures

East sour crude is the type of oil that is extracted from the Middle East countries, such as Saudi Arabia, Kuwait, Iran and Iraq. This region has more than 60% of the world's proven oil reserves. The distinctive feature of this crude oil is that it is high in sulfur and other impurities. As a result, East sour crude is difficult to refine into various distillate products, especially unleaded gasoline.

East Sour Crude Futures: Basics

East sour crude futures are standardized contracts in which a buyer agrees to take delivery of a specific quantity of sour crude oil at a predetermined price and date from the seller. The East sour crude futures market enables traders to:

• hedge against adverse movements in oil prices. Companies and even individuals can benefit from hedging

• speculate on the movement of East sour crude oil prices. Crude oil futures are extremely popular among big financial institutions and retail traders alike.

East Sour Crude Futures: Trading

Trading of the Middle East sour crude futures takes place at the Intercontinental Exchange (ICE). The ICE launched this derivative on May 21, 2007.
• Low liquidity
• Contracts with high spreads
• High risk

The ICE Middle East sour crude futures contract is an electronically traded product. The underlying asset of this futures contract is the crude oil sourced from Dubai, Oman and

Upper Zakum (originating in Abu Dhabi).

The ICE Middle East sour crude futures contract is cash-settled against the Platts Dubai physical cash price assessment. Platts Dubai is the leading benchmark for sour crude oil in the over-the-counter (OTC) markets.

With the start in trading in the ICE Middle East sour crude contract, the existing benchmark for the sour grade of crude and that for Brent and WTI traded together on the ICE's electronic trading platform. As a result, traders and speculators can trade spreads between the futures contracts for Brent, WTI and East sour crude and benefit from cross margins.