Posted on 11/17/2006 2:13:22 PM PST by thackney
Dubai: Dubai launched the Gulf region's first fuel oil futures contracts last month that could mark the beginning of the emirate's transformation into a new energy derivatives trading centre.
The year-old Dubai Gold and Commodities Exchange began trading the Fujairah 380 CST high sulphur fuel oil futures contracts on October 29 to add to its other products - gold, silver and currency futures.
But until November 13, no contracts had been traded.
"I think the energy market players are still gearing up for this. There is a lot of interest, people want to trade these contracts because of a lot of this trading takes place out of Singapore," said Framroze Pochara, DGCX's chief executive.
"People have to get their credit lines in place, their procedures in place. That is taking a bit of time but there is definitely a lot of interest."
Analysts say energy futures contracts sometimes take time to develop liquidity and a fuel oil futures contract launched in Singapore in September has not traded yet.
Fuel oil, also known as bunker fuel, is used to power ships and plays a key role in the region's economy.
Bunkering accounts for 80 per cent of the fuel oil consumption in the UAE with the Port of Fujairah supplying approximately 12 million metric tones of bunker fuel annually.
Fuel oil futures with Fujairah delivery, will help oil industry players better protect themselves against adverse future price movements. It will also improve price discovery.
Industry players currently use the over-the-counter market to hedge price risks and the development of a futures market will lead to a more efficient hedging mechanism.
DGCX, the region's only commodities derivatives market, also plans to introduce a gasoline futures contract in 2007, the only product that the Middle East region as a whole is a net importer in. The DGCX, however, is not the only exchange in Dubai that will offer energy futures contracts.
In April, oil producer Oman and the Dubai Mercantile Exchange, a joint venture between a Dubai Holding unit and the New York Mercantile Exchange, said they would launch a sour crude futures contract in the last quarter of 2006. But its introduction now will most likely spill over into early 2007.
Despite its status as the world's largest hydrocarbon region, the Middle East still lacks a robust and liquid price discovery mechanism for its crude oil. The two leading crude oil futures benchmarks, WTI and Brent, reflect the value of sweet crude oil, not Middle East sour crudes.
The sour crude contract, backed by the Omani government, will be physically delivered using the Mina Al Fahal crude oil storage and loading facilities in Oman.
The contract size will be 1,000 barrels and settled daily at the close of the Singapore trading day, in recognition of the fact that Asia is the biggest market for Middle East crude.
In September, DME also signed an agreement with the Emirates National Oil Co to develop a jet fuel futures contract to be traded on the exchange in 2007.
The lefties keep crowing about the Iranian oil bourse (trading in Euros) but that never seems to get off the ground. I presume this exchange's contracts are dollar denominated.
Is this correct?
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