Oil Traders Look East
Wednesday, May 26, 2010

Addressing global energy executives and leaders of the Kuwaiti oil and gas industry at the 18th Middle East Petroleum and Gas Conference (MPGC) in Kuwait City recently, Thomas Leaver, Chief Executive Officer of Dubai Mercantile Exchange (DME), cited the DME Oman contract as the most transparent and strategically viable price benchmark for East of Suez crude oil markets.

Leaver noted that the fundamental shift east in global crude oil production and consumption patterns has heightened the importance for East of Suez producers and consumers to mitigate and manage risk by ensuring that price discovery is transparent, based on robust production levels from a diversified base, and linked to physical delivery in the region.

Speaking at the conference, Leaver said: "The East of Suez market is now the largest as well as the fastest growing in the world. DME Oman is the only benchmark that addresses this market's needs by linking transparent price discovery, underpinned by robust and diversified production levels and an active spot market, with physical delivery. Producers and consumers are demanding and deserve a liquid pricing benchmark that first and foremost reflects fundamentals in the markets in which they do business."

During his presentation, 'DME Oman - Cementing the New Benchmark', Leaver addressed queries from the industry and emphasized the viability of DME Oman as the primary benchmark for East of Suez markets.

Discussing the contract's liquidity levels, he reported that average daily volumes on the DME continue to grow and have exceeded 3,000 lots per day during 2010, consistently outperforming current market alternatives. Leaver stressed that adoption of DME Oman as a pricing benchmark by other producers would exponentially increase the liquidity of the contract, bringing them closer to the underlying physical markets.

Addressing the issue of substitutable grades, Leaver noted that while these were introduced in OTC markets to try to address declines in Dubai production, a combination of the robust fundamentals of DME Oman coupled with highly regulated market surveillance and oversight eliminated the need for grade substitution.

Leaver also announced the expected launch in Q2 2010, subject to regulatory approval, of DME Oman and Brent-Oman cleared swap contracts which would offer the market enhanced options to mitigate risk.

The DME was launched in June 2007 with the goal of bringing fair value, transparent price discovery and efficient risk management to East of Suez, the world's fastest growing commodities market and already the largest crude oil supply/demand corridor in the world.

Today, DME Oman is the explicit and sole benchmark for Oman and Dubai crude oil Official Selling Prices, the historically established markers for Middle East crude oil exports to Asia.