The InterContinental Exchange (ICE) will on Monday next week launch derivatives based on Nigerian crude, as an alternative to Brent crude index. Brent crude contracts were developed in 1988 and are the dominant derivative. Brent crude is a blend of crude oil from several oil fields in Northern Europe.
There had been agitation for another derivative, as brent’s share of global crude oil production has dwindled over the years.
What is a derivative?
A derivative is a contract based on an underlying asset (in this case, crude oil). Derivatives are used to transfer risks from one party to another, as well as price discovery.
Components of the derivative
The derivative will be based on an index which is comprised of Nigeria’s four major crude oil blends: Bonny Light, Forcados, Qua Iboe, and Bonga.
How does Nigeria benefit?
Nigerian crude blends will become a standardised commodity, which can be traded for both financial and physical delivery. The derivative would have been set up prior to now, but for militant attacks in the Niger Delta which rendered crude oil deliveries on the country unreliable.
Intercontinental Exchange operates several exchanges, clearing houses as well as the provision of data services for the commodity, fixed income, and equity markets. The company made $1.2 billion as revenues for the second quarter ended June 2018.