May 6 (Bloomberg) -- The New York Mercantile Exchange's plan to grab business from the London International Petroleum Exchange is faltering as oil traders including Goldman Sachs Group Inc. shift to electronic trading.

The exchanges have competed for business in the $5 billion-a- day Brent crude oil contract since November, when Nymex opened a trading pit in Dublin. The IPE five months later shut its trading floor and moved the market online, where it has traded about 85 percent of all Brent futures, countering Nymex's plans to take market share, according to data from the exchanges.

The Nymex, the world's largest energy exchange, has for at least six years sought more control of the Brent crude oil market, as its new contracts for commodities including coal and electricity failed to attract much business. The New York exchange bets it can succeed this time by offering a so-called open-outcry trading pit, while the IPE forces traders onto electronic trading.

``Probably in the end, the electronic system will win,'' said Jonathon O'Neill, director of the London office for Hess Energy Trading Co., a unit of Amerada Hess Corp., the fifth-largest U.S. oil company.

The rivalry between the IPE and Nymex is the biggest test yet in world commodity markets of whether online computer networks can replace dozens of shouting traders in a pit, as they have done in financial futures contracts, such as Treasury bonds.

The Nymex and the London Metal Exchange remain as the biggest proponents of open-outcry trading, the method in place at the Chicago Board of Trade since 1848.

More Efficient?

Now, about two-thirds of the CBOT's trades are done electronically.

``The bottom line is exchanges are headed toward electronic trading platforms because they're cheaper to operate and equally if not more efficient,'' said Robert Webb, a professor at the University of Virginia in Charlottesville and former economist with the Commodities Futures Trading Commission. He also spent three years in the Chicago Mercantile Exchange pits.

Capturing the Brent market from the IPE would boost Nymex crude oil trading volumes by more than 34 percent and make trading across the London and New York markets cheaper.

Nymex last year traded 52.6 million contracts of light crude oil, while the IPE traded 27.9 million Brent contracts. Nymex's Brent contract in Dublin has averaged about 13,800 contracts during the last 15 trading days, representing 15 percent of the market, about the same percentage held when the IPE trading floor was still open.

``Considering that the contract has just launched in November, we feel that that's a significant market share for a contract that has been in existence six months,'' said Nymex spokeswoman Anu Ahluwalia. ``We're committed to this contract.''

Goldman Sachs Stays

Goldman Sachs, one of the two biggest investment banks in energy markets, hasn't made the move to the Nymex contract because the firm conducts private trades in the so-called over-the-counter market that are tied to the IPE contract.

``We have traded Brent futures almost exclusively on the IPE mainly because we trade over-the-counter swaps that are based on the IPE settlement price,'' said Goldman spokeswoman Rebecca Nelson in London. ``However, we are looking at Nymex because ultimately we trade for the best execution.''

The Nymex in 1999 attempted to acquire 70 percent of the IPE for $57.5 million. The bid failed, and the IPE in 2001 was purchased by Atlanta-based Intercontinental Exchange Inc., which is backed by banks including Goldman Sachs and oil companies such as Paris-based Total SA. Last year, Total traded the equivalent of 5.4 million barrels of oil a day, about equal to the output of OPEC members Iran and Libya combined.

Nymex views Brent crude oil as a first step in its broader plan to trade a variety of blends of crude oils, at floors in New York, London, Budapest, Dubai and Asia, Nymex President James Newsome said in a November interview in Dublin, when its trading pit opened there on Nov. 1.

IPE Owners

The founders of the IPE parent company have an interest in the success of the London exchange. Morgan Stanley owns 14.9 percent of the parent company, and Goldman Sachs holds 14.2 percent. Total has 9.4 percent, BP Plc another 8.8 percent and French bank Societe Generale holds 8.3 percent. Royal Dutch/Shell Group owns 6.8 percent.

Calls to an ICE spokeswoman in Atlanta were not returned. Total and Shell declined to comment on the competition for the Brent contract.

``It would appear that the ICE equity holders are not trading Dublin'' Nymex contracts, said O'Neill at Hess Trading. ``You have some pretty big companies that are not going to be supporting it.''

Morgan Stanley

Morgan Stanley ``uses all of the exchanges in the global energy markets as well as trades over the counter, and gravitates towards where the best liquidity exists in order to most efficiently address its business,'' said Carlos Melville, a Morgan Stanley spokesman in London.

BP's head of trading, Vivienne Cox, on April 11 said the company has no preference where to trade.

JPMorgan Chase & Co., the world's fourth-largest futures broker, has kept its business with the IPE because the exchange has succeeded in its transition to electronic markets, said David Kitson, the bank's global head of energy and a managing director. JPMorgan doesn't own shares in ICE.

Nymex is seeking permission to open a floor in London as soon as this summer, in an attempt to ward off the migration of traders and brokers to screen trading. Nymex's London floor may cost as much as $10 million.

Since the trading floors of London's coffee and cocoa trading pits closed in November 2000, the markets have grown more quickly than their open-outcry counterparts in New York, as traders adapted to the electronic era.

The number of cocoa futures outstanding has soared more than sixfold since the last day of floor trading on Nov. 23, 2000, on the London International Financial Futures and Options Exchange. By the same measure, the New York Board of Trade's cocoa market shrank by 1.6 percent during the same period.

Traders' Choice

``People will make their own choice, and you will be able to see by volume who is the winner,'' said Toby Sheppard, a trader in London with Fortum Oyj, Finland's largest oil company. ``The real issue for Nymex is getting the floor over to London as soon as possible before people become too accustomed to using the screen.''

More than 40 traders and brokers have been working in Dublin since the closure of the London floor, and Nymex has offered financial incentives to traders, known as locals, who trade on their own behalf, to keep them as active floor traders long enough to participate in a new London floor.

``The fact is that IPE hasn't been a disaster, that you can get volume done on the IPE,'' said Rick Kirk, trading manager in London for ConocoPhillips, the third-largest U.S. oil company. ``Maybe there is no need'' for the Nymex Brent contract.

To contact the reporter on this story: Bill Murray in London at at wmurray1@bloomberg.net

Last Updated: May 5, 2005 19:05 EDT