A CFD is a financial derivative that allows traders to speculate on the price movement of an asset without owning it. The trader enters into a contract with a broker, agreeing to exchange the difference in the asset's price from the time the contract is opened to when it is closed.
Contract Purpose
This differential contract allows market participants to:
- Trade the price spread between Singapore Gasoil and Brent crude oil directly
- Hedge refining margins for diesel/gasoil production using European crude as feedstock for Asian markets
- Manage exposure to both product and crude price movements across two major regional benchmarks
- Implement cross-regional trading and risk management strategies between Asian refined products and European crude supply
Market Significance
Refining Margin Benchmark: Provides a direct tool for tracking and managing the profitability of refining Brent crude into gasoil/diesel in Asia
Regional Price Indicator: Captures the economic relationship between European crude supply and Asian distillate demand
Global Trade Relevance: Reflects the interconnectedness of European crude flows and Asian product consumption, a major axis in global energy markets
Trading Benefits
- Margin Management: Simplifies the process of hedging or trading refining margins with a single contract
- Cross-Market Access: Offers exposure to both Asian and European energy markets in one instrument
- Efficient Risk Control: Directly addresses the risk of price movements between crude input and product output
- Capital Efficiency: Reduces margin requirements compared to holding separate positions in both legs
This contract is especially valuable for Asian refiners processing European crude, trading firms active in the distillates market, and industrial consumers seeking to manage diesel/gasoil costs. It provides a focused tool for managing the spread between these two vital benchmarks, supporting both operational hedging and speculative trading strategies.
