Dubai Mercantile Exchange plans new crude oil derivatives contracts
The Dubai Mercantile Exchange plans to launch two new crude oil derivatives contracts in the second quarter in an attempt to build further trading interest on Wall Street.
The new Brent and Oman crude oil futures contracts will be financially-settled. They will allow traders to play the price difference between the high-quality, light-sweet Brent oil and the lower-quality, heavy-sour Oman oil.
DME’s current Oman crude oil futures will remain as a physically-settled contract.
Gary King, DME chief executive told the Financial Times that the exchange was responding to industry demands for financially-settled contracts and instruments to arbitrage the price difference between Brent and Oman.
He added that the new contracts would increase trading activity, particularly among Western-based investors.
Investment banks usually prefer financially-settled contracts to avoid the risk of taking physical delivery of the cargo. Refineries and some traders, however, prefer physically-settled contracts.
The DME is a joint venture between the New York Mercantile Exchange and the governments of Dubai and Oman.
The exchange launched its Oman crude oil futures in June but had struggled until recently to build trading activity. Daily trading volumes, however, have picked up in 2008 with an average of 2,000 trades for the front-month contract in January.
The increase in trading at the DME contrasts with the sharp decline in activity at the rival Middle East sour oil contract which was launched by Atlanta-based ICE, also last year.
The Middle East sour-oil future – a similar contract to DME’s Oman, but financially-settled – traded just 44 contracts in January and has failed to trade for most of the last two weeks.
“The addition of the two new contracts will bring us to a new level” in trading activity,” Mr King said. “We expect an increase in volume thanks to arbitrage trading between the Brent and Oman contracts.”
Industry executives and traders consider that daily volume at the DME’s front-month contract needs to surge to an average of about 10,000 contracts for the exchange to be considered a success.
The launch of the new contracts was awaiting regulatory approval, Mr King said.(FT)
The new Brent and Oman crude oil futures contracts will be financially-settled. They will allow traders to play the price difference between the high-quality, light-sweet Brent oil and the lower-quality, heavy-sour Oman oil.
DME’s current Oman crude oil futures will remain as a physically-settled contract.
Gary King, DME chief executive told the Financial Times that the exchange was responding to industry demands for financially-settled contracts and instruments to arbitrage the price difference between Brent and Oman.
He added that the new contracts would increase trading activity, particularly among Western-based investors.
Investment banks usually prefer financially-settled contracts to avoid the risk of taking physical delivery of the cargo. Refineries and some traders, however, prefer physically-settled contracts.
The DME is a joint venture between the New York Mercantile Exchange and the governments of Dubai and Oman.
The exchange launched its Oman crude oil futures in June but had struggled until recently to build trading activity. Daily trading volumes, however, have picked up in 2008 with an average of 2,000 trades for the front-month contract in January.
The increase in trading at the DME contrasts with the sharp decline in activity at the rival Middle East sour oil contract which was launched by Atlanta-based ICE, also last year.
The Middle East sour-oil future – a similar contract to DME’s Oman, but financially-settled – traded just 44 contracts in January and has failed to trade for most of the last two weeks.
“The addition of the two new contracts will bring us to a new level” in trading activity,” Mr King said. “We expect an increase in volume thanks to arbitrage trading between the Brent and Oman contracts.”
Industry executives and traders consider that daily volume at the DME’s front-month contract needs to surge to an average of about 10,000 contracts for the exchange to be considered a success.
The launch of the new contracts was awaiting regulatory approval, Mr King said.(FT)
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