Oman contract enables accurate price discovery for producers and consumers
Dubai, March 28 2011: The Dubai Mercantile Exchange (DME) plays a vital role in providing a safe, regulated market place for transparent, efficient and orderly transactions for buyers and sellers of crude oil to achieve fair value, Chief Executive Officer Thomas Leaver told senior energy and trade executives at a key industry event in Dubai today.
Addressing the Economics Workshop on ‘Oil Trade and Finance: Developments and Prospects for MENA’ organized by the Dubai International Financial Centre (DIFC), Mr. Leaver highlighted the critical role of the DME as a marketplace through which buyers and sellers can achieve true price discovery.
He noted that the characteristics of Oman crude, namely robust long-term production levels, a liquid spot market and without destination restrictions made it the most appropriate pricing benchmark for crude oil exports to Asia. The DME Oman contract has witnessed growing liquidity through organic growth and has become the largest physically delivered crude oil futures contract in the world validating the price legitimacy of the contract. The contract provides a seamless link from the futures to the physical market, offering reliable and uninterrupted price discovery to consumers in the Middle East and Asia Pacific region.
At a time of global volatility in oil markets and the pressing need for transparency and risk management, Mr. Leaver highlighted the growing anomaly in price discovery between regulated exchanges such as the DME and price assessment agencies where price setting takes place on unregulated platforms through journalistic assessments. He observed that rather than assessing crude oil prices through the actual buying and selling of oil, which would aid true price discovery, agency price assessments were often impacted by participants trying to influence the price themselves.
Mr. Leaver added that the lack of liquidity in partials assessments highlights the difficulties pricing agencies face in ensuring that their assessments of Middle East crude oil markets reflect regional supply and demand dynamics. The DME Oman, on the other hand, enjoys active and robust trading that is linked directly to physical crude that is well represented in the Asian refining system.
Speaking at the workshop, Mr. Leaver said: “The case for producers and consumers to use the DME Oman price as the benchmark for the East of Suez market is more compelling than ever. The evolution of the Middle East crude market means that an assessment based approach can no longer meet the needs for price discovery and efficient risk management. The DME Oman contract has provided the timeliest pricing and risk management solution for Middle Eastern and Asian stakeholders and one that is being relied upon even more frequently in these volatile times”.
The presentation, ‘DME and the role of Oil Price Benchmarks’ can be accessed on the DME website at http://www.dubaimerc.com/news/events.aspx.
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.