Sharaf upbeat about DME growth

Dubai: The Dubai Mercantile Exchange (DME), which completed three years of operations yesterday, said the exchange has achieved more than 130 per cent increase in its daily volumes since 2008 and is currently averaging daily trading volumes of three million barrels of crude.

Targeting higher volumes and liquidity, the exchange is planning to launch four new contracts this year.

DME expects to launch the DME Oman sour crude and Brent crude related swaps and options contracts as soon as it receives regulatory approval from the Commodity Futures Trading Commission (CFTC) in the United States and the Dubai Financial Services Authority (DFSA), its home regulator.

The range of new contracts includes DME Oman Swap, DME Brent-Oman Swap, DME Oman Average Price Option, and DME Oman European-style Option, subject to the final clearance from CFTC and DFSA.

"Our goal in expanding the product offerings is to provide market participants with a comprehensive and flexible suite of products to facilitate risk management.

"We expect volumes in the new contracts to expand as DME Oman becomes the established pricing benchmark for the regional crude," DME Chairman Ahmad Sharaf told Gulf News.

Flagship listing

The DME's flagship listing is the DME Oman Crude Oil Futures Contract (DME Oman) that has established itself as the most transparent crude oil benchmark in the east of Suez.

Today, DME Oman is the sole benchmark and official selling price (OSP) for all Oman and Dubai crude oil exports. Platts Dubai and Oman assessments are used in pricing formulas by other major Gulf producers, including Saudi Arabia. DME Oman offers vastly improved liquidity over Platts partials assessment. DME Oman's link provides a direct link to market supply/demand fundamentals in the East of Suez region. Trades based on Platts partials rarely go to physical delivery.

DME Oman trades on the CME Globex platform, the world's most widely distributed derivatives trading platform. All trades on DME are cleared through and guaranteed by the New York Mercantile Exchange (Nymex), a member of the CME Group.

Strong link

DME Oman continues to demonstrate a strong link to the underlying Oman crude physical market and is the largest physically delivered crude oil futures contract in the world.

The total number of DME Oman contracts traded since the Exchange launched in 2007 has exceeded 1,374,000 — equivalent to more than 1.3 billion barrels of oil.

"Nearly 22 per cent of our contracts are physically settled. To that extent it is the largest physically delivered sour crude futures contract," said Sharaf.

Unlike other regional crude streams, both Dubai and Oman crudes are outside the Opec quota limits and are sold with no destination restrictions, allowing the establishment of secondary markets that are needed for transparent price discovery.

Oman crude production levels have steadily risen to 850,000 barrels per day providing a reliable underlying physical base and guarding against the potential for price aberrations that could arise from a shortage in physical supply.

Looking forward, Oman production is expected to rise to approximately one million barrels per day, providing long-term confidence on its viability and robustness as a regional marker.

In June 2009, the Government of Dubai joined the Sultanate of Oman through its adoption of DME Oman as the sole benchmark for its OSP, providing a significant boost to the contract's long-term viability and paving the way for wider adoption of DME Oman as a regional pricing benchmark.

"As we celebrate our third year anniversary, we look forward to working with our customers, members, shareholders and industry stakeholders over the coming year to cement the DME Oman contract as the most fair and transparent pricing benchmark for East of Suez crude oil markets," Thomas Leaver, Chief Executive of DME said.

Dubai DME officials said the exchange is in touch with leading oil producers and national oil companies from the region to get them on board to boost its liquidity.

"We continue our dialogue with these big players in the market while making progress in our volumes and product offerings. Our medium-term objective is to make DME the most transparent and liquid market place.

"I hope as we progress more players would find merit in joining the DME," said Chairman of the DME Ahmad Sharaf.

DME is majority owned by the CME Group, Dubai Holding subsidiary Tatweer, and the Oman Investment Fund.

In addition to its core shareholders, global financial institutions and energy trading firms such as Goldman Sachs, JPMorgan, Morgan Stanley, Shell, Vitol and Concord Energy have taken equity stakes in the DME.

Cash-settled contracts

DME expects more institutional participation in the exchange when the new cash-settled contracts start to trade.

"Although our volumes have significant backing from end-user commercial entities, we see merit in participation from financial players in growing our volumes in the future," Sharaf said.