DME To Launch Middle East's First Crude Futures Contract

by Lorys Charalambous, Tax-News.com, Cyprus

20 April 2006

The Sultanate of Oman’s Ministry of Oil and Gas (MOG) and the Dubai Mercantile Exchange Limited (DME) have announced the successful completion of their joint working group’s efforts to develop a new Middle East sour crude futures contract, which will bridge the gap in trading hours between London and Asia.

The announcement follows the signing of a Memorandum of Understanding (MoU) in February 2006, when the two parties committed themselves to undertake intensive analysis of the benefits and implications of developing an Oman-backed physical crude oil futures contract.

According to a DME statement, a joint Steering Committee, comprised of senior leadership from both the Ministry of Oil and Gas and the DME, has unanimously approved the findings of a working group consisting of senior professionals from Oman’s Ministry of Oil and Gas, Ministry of Finance, Petroleum Development of Oman, the New York Mercantile Exchange Inc. (NYMEX) and the DME.

The Steering Committee has instructed the working group to consult the energy and financial communities on the specific terms of the draft futures contract, in preparation for launch in the fourth quarter of 2006.

The Dubai Mercantile Exchange (DME) is scheduled to open this year and has been established to bridge the gap between business hours in the oil trading centres of London and the Far East. The DME is a 50/50 joint venture between NYMEX and a subsidiary of Dubai Holding.

Welcoming the announcement, H.E. Nasser bin Khamis Al Jashmi, Undersecretary of Oil and Gas for Oman commented:

“The creation of a successful, physically linked Middle East sour crude oil futures contract is a concept we sincerely support, given our role in the pricing of Middle Eastern crude. In this respect, we believe the timing is opportune to lead this initiative and very much look forward to receiving market feedback on the contract.”

Gary King, Chief Executive of the DME, added:

“This historic initiative has positive implications for the entire region and will open alternative investment channels for the development of its energy and capital markets."

"By working closely with Middle Eastern oil producers, who are supplying the growing energy demands of regional and Asia Pacific economies, the new electronic Exchange will provide the means to manage price and credit risk in a transparent and open marketplace.”

While the Middle East is the world’s largest hydrocarbon region, it has yet to develop a transparent futures contract, the two leading crude oil futures benchmarks being West Texas Intermediate and North Sea Brent Crude.

The DME says that the development of the new futures contract addresses this anomaly, whilst building upon the historic role that both Dubai and Oman have played in providing the crude oil benchmark for pricing Middle Eastern crude oil.

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