CME Group Inc. (CME), the world's largest futures exchange, is set to launch trading and clearing services for a European gasoil futures contract this week, but oil market participants were skeptical about its prospects.

CME's financially settled gasoil futures contract may struggle to attract volumes amid market participants' reluctance to move away from established benchmark contracts, brokers said.

Trading on the gasoil futures contract is set to begin Aug. 24 on CME's electronic Globex platform, and the contract will become operational on Aug. 22 ahead of the launch.

The contract will be seen as an alternative to the widely used IntercontinentalExchange Inc.'s (ICE) physically settled gasoil futures contract in Europe, market participants said.

CME hopes the new financially settled contract will attract traders who use ICE gasoil futures to hedge risks for positions on oil products or crude oil without wanting to take physical delivery of gasoil, traders said.

However, a spokesman for CME said the contracts launch was more as a result of customer demand.

"Its more the case that customer have come to us because we already have a successful set of European contracts, so they can realize efficiencies through trading alongside our existing contracts," said Justin Bozzino, energy director at CME. The company hopes the contract would provide the market with "more choice," Bozzino added.

The gasoil contract will be cleared through CME's ClearPort, which is available to the over-the-counter market.

However, many in the oil market remain skeptical as to the levels of interest the new contract can generate after previous efforts to launch rival trading services were met with limited success.

"Only WTI [West Texas Intermediate crude] has managed to find significant liquidity outside of its original market," said Olivier Jakob, managing director of Petromatrix, a consultancy in Switzerland.

Gasoline and Heating Oil contracts have had limited success on the Intercontinental Exchange Inc.'s (ICE) European exchange compared with their U.S. counterparts, while oil futures linked to U.K. Brent crudearen't very liquid on the U.S.-based CME, he said.

"The main possible benefit will be for physical arbitrage on which traders could save by using only one platform," Jakob said.

"But there is an Heating Oil contract on ICE where traders would also have the cost advantage but ICE has not been able to attract liquidity to its Heating Oil contract."

The New York Mercantile Exchange, now owned by CME Group, launched its Brent contract in March 2005 but has since failed to match the open interest and liquidity levels seen on ICE's Brent contract.

Open interest levels on ICE Brent stood at 741,239 lots on the markets' close Wednesday, while open interest on Nymex Brent was 45,558 lots, Jakob said.

"I don't think they will be able to draw volumes away from ICE," said an oil broker in London. "People needing to hedge their middle distillate will continue to use heating oil in the U.S. and the Europeans would continue to use ICE."

Other brokers and traders also told Dow Jones Newswires the contract would face an uphill battle to gain liquidity.

Meanwhile, regulatory considerations might be another challenge to the CME contract's success, Jakob said.

Trading on the CME is subject to regulation under the U.S. Commodity Futures Trading Commission, which recently signaled its intention to impose position limits on energy markets in an effort to curb speculation.

ICE Futures Europe's gasoil contract falls under the jurisdiction of the U.K.'s Financial Services Authority, which is broadly opposed to additional curbs on trading positions.

-By Reza Amanat, Dow Jones Newswires; 4420-7842-9487; reza.amanat@dowjones.com

(Lananh Nguyen in London contributed to this story.)