Oil

Dubai oil futures to launch in May

paul@bluesearchltd.co.uk

The Middle East’s first energy futures contract will be launched on May 1 by the Dubai Mercantile Exchange in an attempt to establish a energy futures market in the region.

Most of the the oil exported from the Middle East is of the sour variety, which has a higher sulphur content than the sweet crudes desired by refiners to make petroleum products. Sour crudes trade at a discount to sweet crudes – a price differential that has created an actively traded business in the over the counter market.

Attempts to launch a sour crude contract have been unsuccessful. The two most actively traded crude oil futures, Brent and West Texas Intermediate, are both sweet oils.

The DME is a joint venture between the New York Mercantile Exchange and Tatweer, a company owned by Crown Prince Sheikh Mohammed bin Rashid al-Maktoum. It said it would launch three contracts – the physically delivered Oman crude oil futures contract and two financially settled contracts, a Brent-Oman spread contract and a WTI-Oman spread contract.  

The DME had indicated it would be ready to launch by the end of last year. Gary King, chief executive of the DME, said it had been challenging to get the necessary regulations in place and secure the physical delivery aspect to the contact.

The state-owned oil producer in Oman, Petroleum Development of Oman, said last year it would supply oil to customers wanting physical delivery of the contract. Although this is an important aspect to any futures contract for providing security, in reality only about 1 per cent of crude futures is physically settled.

Omani oil is a reference price for oil in the region, and the Oman government agreed last year to adopt forward pricing of its oil exports on the daily settlement price of the new DME contract. Oman plans to acquire a 30 per cent stake in the exchange.

Mr King is confident there will be sufficient liquidity in the contract as many banks and brokerages had applied for, or were inquiring about, membership to the exchange. The contract will be cleared through Nymex’s clearport system.

“We have received a lot of support. We are launching in a region where hydrocarbons are very important and at a time when confidence in the region is high and where many people want to see an oil futures market established,” said Mr King.