Middle Eastern markets are growing faster than most markets in the western world, partly as the result of many large infrastructure projects creating a subsequent need for imported commodities.
Commodity market participants in the Middle East , like their Western counterparts, trade on both physical and financial exchanges in order to improve market liquidity. Despite their somewhat recent emergence, commodity exchanges in the Middle East are set to make a significant global impact through expanded oil market offerings.
The Creation of the Dubai Mercantile Exchange
Oil trading in the Middle East is growing rapidly; however, creating a centralized and efficient market there will pose a challenge. Many domestic energy producers rely heavily on government subsidies, and the Middle Eastern oil market is still dominated by national energy companies such as Saudi Aramco, Natural Iranian Oil, and Abu Dhabi National Oil. Nonetheless, several key global commodity exchanges have been created in the Middle Eastern market—specifically, the Dubai Mercantile Exchange (DME).
The DME was launched in 2007; it was the first exchange in the Middle East to add energy products to its standard set of commodity offerings. Now, the DME focuses on developing and trading monthly crude oil futures and financial contracts for financial institutions, energy producers, refiners, and traders in the East of Suez region. Presently, one of DME’s major goals is to have one of its products—its DME Oman Crude Oil Futures contract (OQD)—become the crude oil pricing benchmark for the Asian oil market. There is currently no Asian benchmark, and the Middle East exports huge quantities of crude oil to the Asia-Pacific region annually.
In 2012 and 2013, DME delivered its best-ever trading performance. By 2012, DME had traded 3.5 billion barrels of oil since its inception, reaching a daily high of 12,648 contracts on April 25, 2012 (Global Finance). DME then set a new record for average daily volume (ADV), reporting almost 7.5 million barrels of crude oil per day in 2013, and posting a year-on-year ADV trading growth of 36 % (DME). New records in total monthly volume were also set in July 2013, with 162.4 million barrels of crude oil traded through the exchange (Gulf News).
However, over the last two years, DME’s trade volumes have been fluctuating considerably, ranging from 1,000 contracts to 20,000 contracts between December 2012 and July 2013. This is illustrated in Figure 1 below.
Despite these fluctuations, the DME is the most active exchange in the oil market. DME’s Oman Crude Oil Futures contract (DME Oman) is the largest physically-delivered crude oil futures contract in the world, and is the sole benchmark for Oman and Dubai’s exports of crude oil. The majority of this oil ends up in East Asia: “A staggering 40% of the oil DME trades goes to China, where demand for crude is increasing by 400,000 barrels a day” (Global Finance).
The graph below illustrates expectations that the DME Oman and Brent benchmarks will be on the same level in the near future. Historically, Brent has been the strongest benchmark price for purchases of oil worldwide.
There is no doubt that eastern commodity exchanges will continue to become more interconnected and complex as new markets emerge and evolve. However, as markets develop, data disparity occurs. As the sheer volumes of oil market data grows ever more quickly, energy and commodity market participants have to constantly monitor changes from a mystifying array of products offered by public commodity exchanges, private data providers, brokers, and government agencies. Continue reading about the growth of Middle Eastern and Asian commodity exchanges; click here for the full length article.
ZEMA helps oil market participants keep up-to-date on trends in emerging markets like DME. With a robust library of historical and current commodity market data, ZEMA can help market participants track changes in demand and capacity across emerging markets. If our clients have a need for data that is not yet being collected, ZEMA can be easily customized to collect from any source required- including emerging markets like those in the Middle East.
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