Middle East crude oil futures

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There have been multiple efforts to establish a third global benchmark for oil prices using Middle East crude alongside the established West Texas Intermediate (WTI) and Brent crude contract specifications[1]. The Intercontinental Exchange and the New York Mercantile Exchange, through its investment in the Dubai Mercantile Exchange, are currently embroiled in competition to secure this role through competing futures contracts launched in 2007.

Background

The demand for a third benchmark to underpin futures contracts reflects the reference of both the WTI and Brent prices to sweet crude, while the bulk of Middle East exports are sour crude with a higher sulfur content. The subsequent "mispricing" of Middle East oil has spawned a number of unsuccessful efforts to launch new futures based on locally-derived prices.

The first attempt was by the Singapore International Monetary Exchange (Simex) in June 1990, but the contract based on Dubai pricing was terminated in February 1992. The International Petroleum Exchange, now part of the Intercontinental Exchange followed with its own Dubai-based contract in July 1990, just before the start of the first Gulf war, and trading ended in May 1991 before termination in November 1992.

The NYMEX launched a contract in April 2001 based on the Oman/Dubai crude price, but traded for only two days and was terminated in April 2001. In April 2002, the Singapore Exchange and the Tokyo Commodity Exchange (Tocom) announced plans to cooperate on the launch of the Middle Eastern Crude Oil (MECO) futures on SGX[2]. The Tocom had an existing Middle East crude oil futures contract priced in yen in a locals-only market, based on the average Oman/Dubai crude price published by Platts. The Singapore contract was launched in November 2002, but failed to gain liquidity.

NYMEX versus ICE

The fierce energy-market rivalry between the NYMEX and the ICE shifted to Middle East crude in 2007 as both exchanges backed a fresh effort to establish a new benchmark.

The ICE Middle East Sour Crude Oil futures contract was launched on May 21, 200, an an electronically-traded, cash-settled product based on crude oil from Dubai, Oman and Upper Zakum, which originates in Abu Dhabi. The contract is settled against the Platts Dubai physical cash price assessment[3].

The NYMEX product traced its roots back to co-operation with the governments of Dubai and Oman to create a benchmark using the Dubai-Oman price for crudes sold in the Asia-Pacific market.

The two governments signed a memorandum of understanding in February 2006 and pledged to use the contract scheduled for launch on the state-backed Dubai Mercantile Exchange to price their own oil production[4]. The physically-delivered Oman Crude Oil Futures Contract was launched on June 1, 2007 [5].

References

  1. Factbox. Reuters.
  2. MoU. Tokyo Commodity Exchange.
  3. Contract Specifications. ICE.
  4. DME Oman oil futures get last-minute Dubai boost. Reuters.
  5. Contract Specifications. DME.