Dubai Mercantile Exchange - AbsoluteAstronomy.com

Type	Joint Venture
Industry	Commodities Exchange
Founded	2005
Location	Dubai, United Arab Emirates
Products	Energy Futures
Owners	Tatweer, Oman Investment Fund, CME Group and other global financial institutions and energy trading firms
Website	www.dubaimerc.com

The Dubai Mercantile Exchange (DME) is a commodity exchange

Commodities exchange

A commodities exchange is an exchange where various commodities and derivatives products are traded. Most commodity markets across the world trade in agricultural products and other raw materials and contracts based on them...

based in Dubai

Dubai

Dubai is a city and emirate in the United Arab Emirates . The emirate is located south of the Persian Gulf on the Arabian Peninsula and has the largest population with the second-largest land territory by area of all the emirates, after Abu Dhabi...

currently listing its flagship futures contract, DME Oman Crude Oil Futures Contract

DME Oman Crude Oil Futures Contract

Launched by the Dubai Mercantile Exchange on 1 June 2007, the DME Oman Crude Oil Futures Contract is the Asian crude oil pricing benchmark...

(OQD). Launched in 2007, the DME aims to become the crude oil pricing benchmark for the Asian market with its Oman Crude Oil contract, like the Intercontinental Exchange’s (ICE) North Sea Brent

Brent Crude

Brent Crude is the biggest of the many major classifications of crude oil consisting of Brent Crude, Brent Sweet Light Crude, Oseberg, Ekofisk, and Forties . Brent Crude is sourced from the North Sea. The Brent Crude oil marker is also known as Brent Blend, London Brent and Brent petroleum...

is to Europe and the New York Mercantile Exchange

New York Mercantile Exchange

The New York Mercantile Exchange is the world's largest physical commodity futures exchange. It is located at One North End Avenue in the World Financial Center in the Battery Park City section of Manhattan, New York City...

’s (NYMEX) West Texas Intermediate

West Texas Intermediate

West Texas Intermediate , also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing. It is a light and sweet crude oil...

is to North America.

The choice of the OQD contract as a benchmark was due to several important attributes of the crude oil itself and its infrastructure as opposed to the volume of export in comparison with other Middle East crudes. Firstly, the Omani crude oil is not subject to OPEC production quotas and/or cuts, nor is it subject to destination restrictions. Secondly, the geographical location of the export port Mina al Fahal

Mina al Fahal

Mina al Fahal is a coastal area in the northeast of Oman, near to the country's capital, Muscat. It was renamed from Saih al Maleh as the petroleum processing plant was developed. It is a key area for the country's petroleum operations. Petroleum Development Oman is based at Mina al Fahal, and...

(operated by Petroleum Development Oman

Petroleum Development Oman

Petroleum Development of Oman is the foremost exploration and production company in the Sultanate. It accounts for more than 90% of the country's crude-oil production and nearly all of its natural-gas supply...

- PDO),in Muscat into the Gulf of Oman, is past the Strait of Hormuz

Strait of Hormuz

The Strait of Hormuz is a narrow, strategically important waterway between the Gulf of Oman in the southeast and the Persian Gulf. On the north coast is Iran and on the south coast is the United Arab Emirates and Musandam, an exclave of Oman....

. Other reasons such as the increasing long-term production levels and investments, as well as the quality of the crude, helped tip the balance in favor of that crude to be used as a benchmark.

The DME is located in the Dubai International Financial Center

Dubai International Financial Center

The Dubai International Financial Centre is a near-shore financial hub for the or Middle East and North Africa containing a capital market designated as a financial free zone in Dubai. The centre was designed by Eric Kuhne...

, (a financial free zone

Free economic zone

Many countries have, or have had at some time, designated areas where companies are taxed very lightly or not at all to encourage development or for some other reason...

in Dubai), and is regulated by the Dubai Financial Services Authority. The US Commodity Futures Trading Commission

Commodity Futures Trading Commission

The U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....

(CFTC) issued a “No Action Letter

No-action letter

A no-action letter is a letter written by the staff members of a government agency, requested by an entity subject to regulation by that agency, indicating that the staff will not recommend that the agency take legal action against the entity should the entity engage in a course of action proposed...

” in 2007, allowing US customers to trade DME contracts. The DME has received further regulatory approval in 23 jurisdictions.

Company Evolution

The exchange was initially started in 2005, when Tatweer

Tatweer

Tatweer is a member company and subsidiary of Dubai Holding, a Dubai-based holding company set up by the government of Dubai to manage its assets and investments...

and NYMEX signed a Joint Venture

Joint venture

A joint venture is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets...

Agreement to launch a commodities exchange in the Middle East. The following year, Oman’s Ministry of Oil and Gas (MOG) announced that the Omani crude oil’s official selling price (OSP) exported through PDO would be set according to the DME Oman Crude Oil Futures contract. In the first half of 2007, Oman Investment Fund (OIF) acquired a stake in the DME, which was launched on 1st June of that year.

Two major events in 2008 that notably changed the DME’s shareholding structure; several trading firms and international financial institutions, namely Concord Energy, Goldman Sachs

Goldman Sachs

The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...

, JPMorgan Chase, Morgan Stanley

Morgan Stanley

Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....

, Shell

Royal Dutch Shell

Royal Dutch Shell plc , commonly known as Shell, is a global oil and gas company headquartered in The Hague, Netherlands and with its registered office in London, United Kingdom. It is the fifth-largest company in the world according to a composite measure by Forbes magazine and one of the six...

and Vitol

Vitol

The Vitol group is an energy trading company founded in Rotterdam in 1966. Vitol operates worldwide and, along with Glencore and Trafigura, is one of the world's top three crude oil traders. Vitol's headquarters are located in Rotterdam, the Netherlands and Geneva, Switzerland...

, became shareholders of the DME, and NYMEX was acquired by the CME Group

CME Group

The CME Group bases prices for US gasoline on Brent Crude rather than West Texas Intermediate Crude , which many believe is responsible for artificially high gas prices for US consumers...

.

The acquisition of NYMEX by the CME Group greatly impacted the DME. Until the DME migration to the electronic trading platform

Electronic trading platform

In finance, an Electronic trading platform is a computer system that can be used to place orders for financial products over a network with a financial intermediary. This includes products such as shares, bonds, currencies, commodities and derivatives with a financial intermediary, such as a...

CME Globex in 2009, DME futures used to be traded on DME Direct, an electronic platform designed by NYMEX specifically for the DME. The switch to one of the leading platforms, CME Globex, in February 2009 has helped make the access to the DME contracts easier for market participants, as all three benchmarks (WTI, Brent and DME Oman) can be traded on the same electronic platform.

Another boost for the DME in 2009 was the announcement by the Dubai Department of Petroleum Affairs (DPA) in switching their pricing formula to the forward public OSP based on the DME contract. That meant that the Dubai crude oil selling price would become:
In December 2010, NYMEX announced the launch of six DME Oman-linked contracts to complement the availability of trading instruments so as to help establish the benchmark.

Futures Contract

The DME’s flagship contract is the Oman Crude Oil Futures Contract, launched on the 1st June 2007, which became the largest physically delivered crude oil contract in the region. The physical settlement

Settlement (finance)

Settlement of securities is a business process whereby securities or interests in securities are delivered, usually against payment of money, to fulfill contractual obligations, such as those arising under securities trades....

of the contract gives it a unique aspect whereby the front trading month is two months forward (e.g.: the March contract is the front month during January trading).

Total number of barrels traded per year on the Dubai Mercantile Exchange through the Oman Crude Oil Futures Contract:

2007*	200,892,000 barrels
2008	322,294,000 barrels
2009	551,866,000 barrels
2010	744,727,000 barrels

* the exchanged opened on the 1st June 2007.
1,000 barrels = 1 lot (or contract).
Figures are from the DME website

With over 144 million barrels delivered through the exchange in 2010 and more than 50 companies trading the contract regularly, it seems that the DME Oman oil benchmark has been accepted by market participants as a regulated and transparent benchmark for the East of Suez

East of Suez

The phrase East of Suez is used in British military and political discussions in reference to imperial interests beyond the European theatre ....

market.

External links

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Company Evolution

Futures Contract

See also

External links