Industries agree future of energy trading is online

NEW YORK -- Point, click and trade.

The three words that rocked the world promise to revolutionize oil markets, too.

Oil prices are already in turmoil.

But the classic supply-and-demand drama that's shaking oil may come to seem trivial compared with the Internet's impact over the next few years. The future of oil trading is online, oil companies and commodities exchanges agree. Now they've got to figure out how to put it there.

"E-commerce is spinning us in so many different ways. Companies are making a serious effort to understand it and build it into their business," said Art Nicolleti, president of Equiva Trading Co., the trading arm of a joint venture of Shell Oil, Texaco and Saudi Arabian Oil Co.

Several major energy companies are putting substantial capital into plans designed to move trading online.

Equiva Trading has invested more than $6 million in Houstonstreet.com, an energy trading site, to which the company hopes to move all of its 7 million barrels a day of oil trading.

Texaco has bought a minority stake in TradeCapture.com, and will use the e-commerce platform to trade refined products internationally.

After Houston energy brokerage International Energy Partners LLC clients asked for faster, cheaper and more reliable ways to make money trading petroleum, the company launched NRGLine.com in January, for refined product trading.

The race to trade barrels online also has attracted the New York Mercantile Exchange, the world's largest energy futures market. Nymex is considering offering a one-stop e-commerce site where traders can buy crude oil and products and offset the risk attached to those deals by trading futures.

"We're looking to wrap the floor in technology, to create a virtual e-commerce environment while still maintaining the advantages of an open outcry system," said Nymex spokeswoman Nachamah Jacobovitz. "You're placing the order over the Internet, but it ends up being executed in the trading ring."

Trading petroleum online could have big advantages. A mouse-click might eliminate the numerous phone calls traders now make to find the right grade of crude oil at the desired price.

Oil e-trading also could increase price discovery, by allowing traders to look at bids and offers on a screen, rather than having to feel out where the market's going via a phone handset.

There are serious stumbling blocks to making such a system work in the energy market, however, not the least of which is getting Web sites liquid enough to make trading worthwhile.

Nymex has perhaps the best chance of attracting a big enough crowd to create liquidity. About 150,000 crude futures contracts traded daily in its pits during 1999. That amounts to about $3 billion of oil trading hands every day. By contrast, the 7 million barrels of crude a day Equiva wants to bring to HoustonStreet.com represents about $140 million in trading.

Nymex chairman Daniel Rappaport believes online trading will expand markets, the way e-broker sites increased interest in equities.

"An e-trading site could attract a day trader who hasn't had access to the Nymex," Rappaport said. "Internet brokerage sites in the equity market have already showed us how speculators want to trade: From the golf course, the home office, the ski slope."

Compounding the liquidity problem for sites like Houstonstreet.com is the likelihood that other sites will keep popping up and spread thin the number of potential traders.

Once they've established customer bases, energy e-sites have the potential to be all things to customers who require numerous services to move barrels of oil and refined products to and from the market.

"At some point, the Internet will provide visibility into the entire supply chain," said Rick Carr, a consultant with PricewaterhouseCoopers in Dallas, who has worked with energy companies on e-business issues. "You'll be able to combine trading, logistics and storage online."

2000Copyright
Provided by ProQuest Information and Learning Company. All rights Reserved.