DME goes live with Oman crude futures contract

Dubai: The Dubai Mercantile Exchange, the Middle East’s first energy futures and commodities exchange, went live yesterday with the Oman crude oil futures contract. Trading began at 2am yesterday at DME, a joint venture between Tatweer, a member of Dubai Holding, the New York Mercantile Exchange (Nymex) and the Oman Investment Fund (OIF). Preparations for the launch were in the works for the past three years. “It has been a challenging journey from the day we decided to set up the exchange to its launch. Today we have the international energy exchange up and running with a transparent price discovery mechanism that offers an effective risk management tool for the global energy trading community,” said DME Chairman Ahmad Sharaf during a teleconference yesterday. ——————————————————————————– ——————————————————————————– The first daily settlement price of the Oman contract, the Middle East’s first and only physically settled energy futures contract, was $64.09. This will be the first price used by Oman’s Ministry of Oil and Gas in calculating its official selling price. From now on, Oman’s pricing formula will be the average of the Oman crude oil futures contract’s daily settlement prices over each calendar month. The average set in June will determine the price of Oman’s August cargoes. In addition to the Oman crude oil futures contract DME yesterday launched two financially settled futures contracts, the Brent-Oman Spread Contract and the WTI-Oman Spread Contract. Membership The exchange currently has 60 members with 20 market makers. “We are not recognised by 14 leading overseas jurisdictions,” Sharaf said. “We are in the process of getting regulatory approvals from other major global jurisdictions.” Dubai recently adopted forward pricing of its crude oil based on the daily settlement price of the DME’s Oman contract. Oman made a similar commitment late last year abandoning its retroactive price discovery mechanism in favour of the new Oman futures prices traded on the DME. The DME’s sour crude contracts come as a challenge to the market where several attempts in the past to create a liquid sour contract failed. Traders expect the Dubai contracts will create viable hedging opportunities and price transparency. “The DME’s customers know that the contract’s deliverability provides true price convergence between the cash and physical markets. This is especially advantageous in Asia, which imports more than two thirds of its crude oil from the Middle East and has long sought greater price transparency and better risk management tools,” said Gary King, DME’s chief executive officer, in a statement. “Oman’s endorsement of the DME gives it a rare credibility that no other sour crude contracts in the past had managed to achieve. However, participation from bigger players like Saudi Arabia will be major factor in making it a liquid international exchange,” said a Dubai-based trader.