Commodity Online
DUBAI: The Dubai Mercantile Exchange is celebrating its second anniversary even as hopes soar on its benchmark contract DME Oman Crude Oil Futures Contract becoming a global benchmark perhaps even replacing WTI and Brent Crude presently adopted worldwide

The DME was established two years ago by Dubai developer Tatweer, the CME Group that runs the commodities exchange in New York and the Oman Investment Fund. In August 2008. The DME announced the release of an indirect equity stake of up to 20% in the Exchange. Among those that subscribed were blue-chip international financial institutions and energy trading firms including Goldman Sachs, Morgan Stanley, Shell, Vitol, Concord Energy, and Casa Trading. JP Morgan joined this group in October 2008. The remaining 5% stake is held by DME floor members.

The DME Oman Crude Oil Futures Contract is aimed at addressing the growing market need for price discovery of sour crude oil destined for East of Suez markets.

”Prior to and since its launch, the DME has prided itself on working with the full range of industry participants to develop and provide the required price discovery mechanisms and risk management tools for the East of Suez markets, the nexus of both the world’s largest crude producing region in the Middle East and fastest growing demand centers in Asia,” senior officials of DME said in a press release.

The DME average daily volume (ADV) has significantly increased since the start of 2009, driven by more diverse participation and backed by increased confidence in the contract as the most efficient pricing and risk management tool for the East of Suez market. On a typical day, DME Oman is traded by more than 30 participants and trades an average of 2.1 million barrels. A new record single-day volume of 6,484 lots was reached on the 13th of January 2009, the equivalent of over 6.4 million barrels.

Alongside the improved volumes, open interest has grown considerably. The baseline DME Oman open interest in 2008 was 3,226 lots (equivalent to 3.2 million barrels). Since December 2008, the minimum open interest has been 6,502 lots (equivalent to 6.5 million barrels). April 2009 saw a new record total open interest of 18,656 lots (equivalent to 18.7 million barrels). The more than doubling of the baseline open interest is a result of increasing confidence in the DME Oman contract as market participants have started to trade further along the curve and are increasingly using the contract as a risk management tool.

DME is reportedly trying to convince the regional producers, most importantly the world's number one producer, Saudi Arabia, to start using the Oman benchmark when setting export prices.

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The DME is a fully electronic exchange, and its contracts are listed on CME Globex, the world's leading electronic trading platform from the CME_Group. The DME is authorised and regulated by the Dubai Financial Services Authority (DFSA), and all trades executed on the Exchange will be cleared through, and guaranteed by, NYMEX’s AA+ rated clearinghouse which is approved as a Recognised Body by the DFSA. As a function of this, the DME is also regulated by the Commodity Futures Trading Commission CFTC, as well as holding further regulatory approvals, no objection or legal opinions from 23 other global regulators.

Amidst global turbulence in oil markets in the past 12 months when prices skyrocketed to $150 per barrel and fell subsequently to $33 levels, DME Oman has offered significantly improved price discovery relative to the Platts partials price assessment mechanism. Even more importantly, DME Oman provides linkage to the underlying physical markets which had never before been achieved. Improved volumes and open interest on DME Oman have coincided with the OTC partials trading collapse, leaving DME Oman well-positioned to become the predominant mechanism for price discovery and risk management in the East of Suez crude markets.On average, DME Oman offers more than 680 price points for every Platts partial traded.

”Today, DME Oman provides the basis for setting Official Selling Prices (“OSP”) for Oman and Dubai crude. Both crudes have historically been established as the primary benchmarks for East of Suez markets,” DME officials commented.

The DME continues to engage with regional National Oil Companies, and the broader oil industry, to communicate the benefits of adopting DME Oman as the most suitable, fair and transparent pricing benchmark for the East of Suez crude oil market, the press release added.

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