RPT-Asia oil swaps trade upturn reaches climax in Oct

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* Improvement can be sustained going forward

* Market confidence, sustainable volatility stoke recovery

* Growth seen most in middle distillates

By Yaw Yan Chong

SINGAPORE, Nov 5 (Reuters) - Asia's oil derivatives market
saw its best month for 2009 in October in terms of volumes and
profits, signalling confidence has returned after more than a
year in the dumps, brokers and traders said on Thursday.

The revival and return of risk appetite are driven by
improving financial market sentiment, which saw Goldman Sachs
on track to pay hefty bonuses, and helped by sustainable
volatility in crude benchmarks that rose to year-highs above
$80 a barrel.

Oil's rally so far has not been a repeat of last year's
extreme volatility which made it difficult to trade and caused
heavy losses, brokers said.

"It was a great month. And I'm optimistic that the
improvement can be sustained going forward," a senior
Singapore-based broker said.

"Confidence has returned to the market -- banks are more
willing to finance trades and counterparties are more willing
to trade with each other."

One broker said his firm saw its best returns for the year
in October, with middle distillates leading with 25 percent
more volumes from the average of about 40 million barrels a
month, while fuel oil and naphtha saw around 10 percent
increases.

A compilation of daily swaps trades based on Reuters'
coverage of activity in Over-The-Counter (OTC) markets, the
InterContinental Exchange (ICE) and pricing agency Platts
electronic platforms, shows that October saw 24.4 million
barrels of distillate trades, up from 20.2 million barrels in
September. [PS/A] <OILSWAP/SG>.

Fuel oil volumes were steady at 4.5 million to 5.5 million
tonnes each month between August and October, Reuters data
show.

The Singapore OTC oil swaps market, which brokes mainly
crude, fuel oil, middle distillates and naphtha, is dominated
by six companies -- BGC Radix, Ginga Petroleum, Man Financial,
OceanConnect, TFS Energy, ICAP and newcomer Nittan.

SUSTAINABLE VOLATILITY

Brokers said banks are more relaxed about giving credit
than six months ago and counterparties are also more willing to
take up credit risks.

Trading or speculative plays, noticeably absent for much of
the last 12-15 months, are becoming a common feature again in
the last three to six months. European trader Glencore was the
latest to do so in the November fuel oil market.

"It also helped that there was some volatility in the
market last month, with prices at higher levels. Traders need
volatility to make money and we got that last month," the
senior broker added.

In October, crude benchmarks surged to year-high levels of
around $82.00 a barrel, with the high-low range for the
front-month NYMEX WTI contract at $11.49, from the low of
$69.88 on Oct. 7 to the high of $81.37 on Oct. 21.

"The volatility, with flat prices still not too high and at
comfortable levels, have encouraged traders to take more
speculative positions," one trader said.

The Singapore OTC market was hit hard last year by surging
crude benchmarks to records near $150 a barrel, triggering
wildly volatile moves that saw heavy losses in the market and
forced many to stay away.

When oil product prices rose in tandem with crude, traders
were unable to trade the volumes they were used to because the
swings weighed heavily on the daily limits set by their firms.

This was followed by Platts' move to introduce the
electronic pricing system, which allows traders to enter
bids/offers and trade directly on their platform during the
half-hour window pricing period, removing the need to use
brokers and hit OTC volumes.

The global economic crisis also cast gloom over the
industry -- counterparties were wary of each other's credit and
were more risk-averse in their trades.

With the economic recovery underway and the return of risk
appetite -- provided oil does not revert to the fluctuations
caused by rocketing prices -- brokers expect volumes to
stabilise at current higher levels next year. They also noted
that November and particularly December are traditionally slow
months.

"I would be happy if we can see 90 percent of October's
volumes for this month. It's quiet this week because of APPEC
but I am confident it would be OK for the rest of the month,"
another broker said.

"Hopefully, the growth will stabilise from next year
onwards. But if crude were to breach $100 a barrel again, we
might just slip back to the bad old days."
(Editing by Ramthan Hussain)