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Nymex's Newsome Sees 'Emotional Stage' of Oil Price Crisis Waning

The "emotional stage" of the current crisis over skyrocketing oil prices is easing, New York Mercantile Exchange (Nymex) CEO James Newsome said during an earnings conference call last Thursday, and he expects to see more generalized energy measures proposed when Congress returns from its August recess.

"The education process is improving...people are getting the message that the time of cheap oil and gas is over. People, particularly those in Congress, are starting to understand that the energy price increases are demand driven," where in the past it has almost always been supply side cut-offs due to weather, wars or infrastructure failures. The problem is that it is more difficult to get a handle on demand than it is on supply, particularly projections from rapidly modernizing countries such as India and China.

However, Newsome said "cooler heads are starting to prevail," and he believes the Congress is "coming to the end of the most emotional component of the equation, and now people are going to start focusing on what they have to do to try to impact price." The answer will be much more generalized legislation (see related story).

As for the speculation-directed provisions, "speculative limits certainly will be included as it relates to foreign boards of trade," but "the discussion focused on aggregating the position limits of Nymex, ICE [IntercontinentalExchange]and the OTC [over the counter], that's a much broader and much more difficult question to solve. I don't think Congress will come up with a solution. My guess is that at the end of the day they will request the [Commodity Futures Trading Commission] study aggregate position limits and report back to the Congress."

Nymex Holdings Inc., the parent of the New York Mercantile Exchange, Thursday reported a 29% jump in operating revenues and a 126% hike in net income for the second quarter compared to the same period a year ago as the company continued to inch up in market share for the key WTI crude contract.

In the question and answer session with analysts, Chairman Richard Schaeffer attributed the increased share of the WTI contract for Nymex over rival ICE -- 73%, compared to 70% in the previous quarter -- with "uncertainty in the marketplace. Liquidity goes to liquidity." The fact that Nymex is "the higher liquidity provider is drawing more attention" in the current market, where price volatility "is the worst I have ever seen" in nearly 50 years in the market. These periods come and go, he said.

The parent company's operating revenues were a record $210.8 million in 2Q2008 and net income was $94.3 million.

Diluted earnings per share for the second quarter 2008 were 99 cents, based on 94.9 million shares outstanding, compared to 44 cents for the second quarter 2007. "Our strong second quarter performance is the result of volume growth, strength in average rate per contract fees, and the discipline we are applying to managing our expenses," Schaeffer said. He also credited new product launches, including The Green Exchange venture, and its initiative with LCH.Clearnet. Beyond that "the proposed combination between Nymex and CME will allow us to take our business and growth to a much higher level."

Nymex said clearing and transaction fees rose 31% for 2Q2008 to $180.4 million compared to $137.4 million for 2Q2007 and market data fees increased 15% to $26.9 million versus $23.4 million in the 2007 quarter.

Average daily volume was 1.812 million contracts in 2Q2008, a 30% increase over the 1.396 million in 2Q2007. Nymex electronic trading volume on CME Globex averaged 865,149 contracts per day and represented a 42% increase over second quarter 2007 electronic trading volume, while Nymex floor-traded volume was down to 221,868 contracts/d compared to 256,635 contracts/d for the same period of 2007.

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