Rising crude oil prices spark interest in petroleum contracts

INVESTORS betting that oil prices could rise further in the near term have bought heavily into petroleum-based issues in the past week.

Turnover of call warrants issued on companies in the petroleum sector surged nearly seven times to 5.6 million units last week, from 815,240 units a week earlier.

Crude oil prices rose sharply thanks to speculation over a confrontation in the Persian Gulf between Iran and the United States and Britain, following Iran's capture of 15 British navy personnel, said a DBS Vickers report. Oil prices have jumped 7.4 per cent since Iran seized the group on March 23.

Crude oil for May delivery hovered around US$66 per barrel on Friday, near a six-month high, with the possibility that the tensions may affect oil supplies from the Middle East.

'There is a correlation between higher oil prices and increased interest in petroleum warrants,' said BNP Paribas' head of retail listed products sales for Singapore and Hong Kong, Mr Simon Yung.

'Hot money' from fund managers flowing into petroleum-related equities accounted for the higher activity in their warrants, he said.

Warrants issued on Singapore Petroleum Company (SPC) were among the most actively traded.

The most active contract issued on SPC was a call warrant that pays investors if the parent share price goes above $4.54. It rose 1.9 per cent to 27.5 cents last Friday, with 1.4 million units traded.

Another active SPC call warrant surged 4.3 per cent to 24 cents on Friday, with 1.2 million units changing hands. Investors are rewarded if SPC shares go above $4.40.

SPC's stock fell two cents to $4.84 last Friday.

BNP Paribas will issue a call warrant and a put warrant on property firm CapitaLand tomorrow, the same day it issues a call and a put each on DBS Group Holdings.

A call warrant gives the right to buy the underlying share later while a put offers the right to sell.

Last week's average daily warrant turnover was $80 million, up from $70 million. But average daily trading volume was 290 million units, down from 296 million units.