Beijing summit hears that price risk management “is of critical importance”
Addressing energy executives and leaders of China’s oil industry at the Crude Oil and Naphtha Asia Summit in Beijing today, Thomas Leaver, Chief Executive of Dubai Mercantile Exchange (DME), cited the DME Oman Crude Oil Futures Contract (DME Oman) as the most credible and transparent pricing benchmark for East of Suez crude oil markets.
Noting that the Asia Pacific region has become the largest crude oil consumer in the world, with Chinese demand a key component of East of Suez growth, Mr. Leaver emphasized the importance for East of Suez producers and consumers to manage risk by using a benchmark that ensures robust price discovery and accurately reflects the fundamentals of the markets in which they do business.
Speaking at the conference, Mr. Leaver said: "Rapidly developing economies such as China are playing an increasingly influential role in regional and international oil markets. As rising Asian demand occurs in parallel with high structural volatility, the need for active risk management becomes critically important.
DME Oman is the only benchmark that addresses the needs of this fast growing market, linking transparent price discovery to physical delivery, underpinned by robust and diversified production levels and an active spot market."
During his presentation, ‘DME Oman – The New Pricing Paradigm’, Mr. Leaver emphasized the benefits of Oman crude as the most robust and representative crude grade for East of Suez pricing. Discussing the contract’s liquidity levels, he reported that average daily trading of DME Oman has increased by 130% since 2008, averaging 2,884 lots since the start of 2010, equivalent to around 3 million barrels of oil traded daily.
Oman crude is widely traded East of Suez, with approximately a third heading to China, according to 2009 figures. Building on the broad market awareness of Oman crude in the region and its viability as the benchmark for markets East of Suez, Mr. Leaver outlined the leadership role that China could play in driving regional markets towards accepting DME Oman as the most robust crude oil benchmark.
Mr. Leaver also discussed the expected launch of DME Oman and Brent-Oman cleared swaps, subject to regulatory approval from the Dubai Financial Services Authority (DFSA) and the U.S Commodity Futures Trading Commission (CFTC). The contracts would provide the marketplace with an important hedging vehicle for managing price risk in the Asia Pacific and Middle East energy markets.
The DME is regulated by the DFSA and all trades on the DME are cleared through and guaranteed by the New York Mercantile Exchange (NYMEX), a member of the CME Group, which is regulated by the CFTC and is a Recognized Body by the DFSA.
Today, DME Oman is the explicit and sole benchmark for Oman and Dubai crude oil Official Selling Prices (OSPs), the historically established markers for Middle East crude oil exports to Asia.