Dubai Mercantile Exchange unveils details of Oman futures

Dubai: The Dubai Mercantile Exchange Ltd, a joint venture between Dubai Holding unit and the New York Mercantile Exchange, announced yesterday the details of its Oman Crude Oil Futures Contract at the Asia Oil and Gas Conference in Kuala Lumpur.

Chief Executive Gary King revealed that the contract, to be launched in the fourth quarter of this year, will be known officially as the Oman Crude Oil Futures Contract.

Developed in collaboration with the Sultanate of Oman's Ministry of Oil and Gas, Ministry of Finance and Petroleum Development of Oman (PDO), the contract will be physically delivered using the Mina Al Fahal crude oil storage and loading facilities in Oman.

The contract size will be 1,000 barrels and settled daily at the close of the Singapore trading day. This recognises the fact that by far the biggest market for Middle East crude oil is in Asia.

The minimum position size to take physical delivery will be 200,000 barrels. All delivery matching will be undertaken by the Dubai Mercantile Exchange and PDO, the national oil exploration and production company of Oman, whose main offices are based in Mina al Fahal.

All contracts will clear at the New York Mercantile Exchange (Nymex) clearinghouse.

In addition to current margining practices by Nymex, delivery margining will be conducted through Letters of Credit (LCs) and Letters of Indemnity (LOIs) posted to the clearinghouse via each clearing member.

"Just one year ago in New York, our joint venture partners Tatweer, a member of Dubai Holding and the Nymex announced the creation of the DME. Two days later, our Chairman and the President of Nymex were in Kuala Lumpur at this very same conference to introduce the DME to the Asian markets that are so important to us," King said.

King said that building on unprecedented regional confidence, the current market situation presents an ideal opportunity for this contract to succeed.

Despite its status as the world's largest hydrocarbon region, the Middle East still lacks a robust and liquid price discovery mechanism for its crude oil.

The two leading crude oil futures benchmarks, WTI and Brent, reflect the value of sweet crude oil, not Middle East sour crude oils.

"We are confident that both producers and their customers will see the benefits to them when the Oman Crude Oil Futures Contract starts trading on the DME," he said.

The regional and international markets are also responding favourably to the DME's proposition following a series of roadshows.

He continued: "We have decided to trade electronically while also physically locating a community of traders on the exchange floor in unique trading hubs, and we are finalising the process for deciding membership of the Exchange.

"Our building, located in the Dubai International Financial Centre, and our trading facilities are nearing completion."

Factfile: Contract will be delivered using Mina Al Fahal crude

• The contract will be physically delivered using the Mina Al Fahal crude oil storage and loading facilities in Oman.
• The contract size will be 1,000 barrels and settled daily at the close of the Singapore trading day. This recognises the fact that by far the biggest market for Middle East crude oil is in Asia.
• The minimum position size to take physical delivery will be 200,000 barrels. All delivery matching will be undertaken by the Dubai Mercantile Exchange and PDO.
• All contracts will clear at the (Nymex clearinghouse. In addition to current margining practices by Nymex, delivery margining will be conducted through Letters of Credit (LCs) and Letters of Indemnity (LOIs) posted to the clearinghouse via each clearing member.