Dubai: Dubai Mercantile Exchange (DME) announced a 160 per cent increase year-on-year in trading activity on the exchange’s forward curve, reflecting customers’ growing need for longer-term risk management.
The forward curve represents the value of Oman Blend Crude Oil in future months. Activity in the forward curve happens when customers want to protect themselves against the risk that the price of Oman crude oil will fluctuate in the future.
Total trading volume in the forward curve in February 2019 reached 43.9 million barrels compared to 16.9 million barrels in February 2018.
The DME Oman crude oil contract has become a very significant benchmark for sales of Middle East oil into Asia. The contract was included in the official selling price of Saudi Arabia and Bahrain from October 2018. Customers had previously faced a significant risk because they were unable to hedge the Oman side of Middle East oil price formulas.
“The 160% surge in activity on the DME forward curve is a clear indication of the growing need from customers to hedge price risk. DME Oman is a highly efficient and transparent price discovery mechanism for regional crude oil and we are delighted to see the increasing take-up by customers,” Raid Al Salami, Managing Director, DME, said in a statement.
DME has also enhanced its pricing mechanism by adding a new security measure — CME Group’s Velocity Logic — to the exchange’s trading platform. Velocity Logic works to deter extreme price moves by detecting sharp price movements within a predefined time period and then briefly pausing the market to allow traders to reassess their positions.