February 4, 2016 / 10:32 AM / 3 years ago

As energy rout deepens, CME, ICE reap benefit from record volumes

NEW YORK (Reuters) - As the long rout on world energy markets intensified in volatile trade in recent months, exchange operators have reaped benefits.

The Chicago Mercantile Exchange is pictured March 17, 2008. REUTERS/John Gress

The two largest commodity exchanges, CME Group Inc and IntercontinentalExchange, saw crude oil volumes jump some 40 percent and 14 percent respectively in 2015, recent data showed. (tmsnrt.rs/1meVwEx)

Turnover in their flagship oil contracts surged further to record highs in January, according to data released this week, as whipsawing prices spurred a surge in interest from retail and speculative investors.

On Thursday, the Atlanta-based exchange reported forecast-busting earnings for the fourth quarter due to its data business.

The bonanza in energy products helped cushion weakness in other major products, with Brent crude leapfrogging interest rates contracts to become its second-biggest revenue earner after cash equities in 2015. Full-year revenue jumped 14 percent to $263 million.

“More people are paying attention to those prices and trying to figure out when to lock in low prices or whether or not there are going to be higher prices,” Jeffrey Sprecher, chief executive of ICE, said on a call with analysts after the results.

ICE’s Chicago rival releases its numbers on Friday.

Turnover typically picks up during market booms or busts, but a surge in turnover in some of the exchanges’ biggest contracts by liquidity and volume illustrates growing worries among investors that the crude supply glut could last longer.

“We’ve seen people piling in and getting out. The exit and entry has elevated trading volumes,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut.

The volatile prices have also drawn greater interest from retail and fund investors, analysts said.

In January, ICE’s Brent contract saw just over 23 million futures and options traded in the month, up 45 percent from December and almost a quarter from a year ago. That exceeded the previous monthly record set in January 2015 by over 4.5 million contracts.

Some 26.2 million contracts of CME’s U.S. WTI crude contract, equivalent to 26.2 billion barrels of oil, changed hands last month, up almost 30 percent from a year ago and a jump of nearly a quarter from December.

Based on January numbers, Richard Repetto, an analyst at Sandler O’Neill & Partners, said CME’s energy volumes are running at more than 30 percent above his annual estimate and ICE at 15 percent ahead of his forecast.

Other energy products also fared well from the rout. Futures and options volumes in CME’s gasoline contract rose 10 percent from last year to 3.4 million contracts, the highest for a January since at least 2008.

ICE’s European natural gas futures contract hit a record above 2.1 million in the month, up almost a third from January 2015.

The energy boon is in marked contrast to other financial instruments.

On Wednesday, exchange operator CBOE Holdings Inc reported stronger-than-expected quarterly earnings, but operating revenue dropped due to a decline in transaction fees and trading volume.

“Obviously, oil has been getting even more attention than usual these days, and many believe there is major opportunity as a potential bottom has been reached - or, at least, may be within sight,” said Peter Donovan, broker at Liquidity Energy.

For crude oil investors, January was wild.

A fresh sell-off accelerated declines in the first weeks of January. U.S. prices crashed below $27 per barrel on Jan. 20 for the first time since 2003, as traders worried about one of the biggest supply gluts in history.

By the end of the month, prices had bounced back more than 25 percent from those 12-year lows on hopes of a deal between major exporters to cut output.

Graphic of CME and ICE trading volumes (tmsnrt.rs/1meVwEx)

Reporting by Josephine Mason; Editing by Cynthia Osterman and David Gregorio

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