Dubai: The Dubai Mercantile Exchange (DME), the UAE's oil futures market, plans to introduce Oman crude-based swaps contracts to woo Asian refiners away from Dubai-linked derivatives sold in the over-the-counter market.
The exchange will offer both swaps and options this year once regulators approve them, Chief Executive Officer Thomas Leaver said in an interview in Kuala Lumpur. The new derivatives will help refiners manage their price risk based on Oman's output of 850,000 barrels a day rather than Dubai's 80,000 barrels a day, he said.
"There hasn't been an alternative Oman swaps contract, so if there is a swap linked to it that will allow people to do size trades and be additive in terms of their hedging," Leaver said.
Attracting refiners to base their swaps pricing on the DME's Oman contract may increase the volume of futures traded, leading oil users to move away from Dubai figures published by Platts, the energy-information division of McGraw-Hill Cos. At stake is the ability set the prices about 14 million barrels a day of oil exports to Asia.
A swap is an agreement between two parties to exchange the difference between two price payments, one fixed and one floating, for a specific commodity over a period of time.
Dubai was taken as a benchmark in the 1990s as it was freely traded and not subject to retroactive pricing systems like those used by producers such as Kuwait and Saudi Arabia. That status has eroded as the grade's output slipped. Traders and refiners still use it as the basis for over-the-counter swaps, the main risk management tool for Asian end-users.
