The Dubai Mercantile Exchange (DME) finds itself located in an increasingly strategic trading hub, as crude oil trade between the Middle East and Asia surges. This looks set to become more entrenched as the balance of demand from the world’s two biggest oil consumers tilts eastwards. On one side, China’s voracious appetite for imported crude shows few signs of abating, while on the other, the shale gas revolution in the US means its thirst for imported oil is now in decline.
Thanks to its ability to capture this burgeoning eastern trade flow, the DME Oman benchmark appears on a fast-track to status as a leading oil benchmark. Today, DME announced record trading volumes of 6,978 ADV in June 2013. To find out what the future holds for the DME and the region, we sat down with Chief Executive Officer Christopher Fix.
Can you review the recent growth of the DME Oman benchmark? Where do you see biggest growth potential going forward?
In 2012 DME passed the 1 billion barrels milestone of oil-traded in a single year for the first time. This was a particularly strong year as our growth bucked a trend of falling volumes at many other global exchanges. This momentum has carried through to 2013 as DME Oman passed the 4 billion barrels traded mark in February and recorded record open interest in March. We have also boosted our exchange members with RBS and Mitsubishi joining in April and June respectively. We are currently seeing an average daily volume (ADV) equivalent of 6 million barrels of oil, which represents 27 percent annual growth since 2007.
This performance has reinforced our position as the most credible source of pricing for Middle Eastern crude oil bound for the Asian markets. Going forward, the rapid growth in the East of Suez crude oil corridor will further increase the region’s importance to global crude oil trading.
Do you see Asian markets widely viewing DME Oman as the benchmark for the region?
It’s natural that the market will seek a benchmark, which is truly reflective of the economics of the Middle East and Asia. This is why we see a great opportunity to develop the DME Oman contract further and expand our volumes: It meets the needs of producers and consumers in this region in the way a European benchmark like Brent simply cannot. DME Oman is the best reflection of the realities of eastern trade flows.
What are your biggest challenges to get more gulf producers using DME Oman as a benchmark?
My objective is to make the DME more relevant to Gulf producers and we are making good progress on that front. To achieve this we aim to further enhance the efficiency of our trading platform by reducing the bid offer spread and boosting volume by encouraging more trading down the curve, and bringing in more trading companies. DME is not seeking to actively pursue the Gulf producers, but by building the most robust market we can, then I am confident we will generate interest from the regional NOCs (National Oil Companies).
You were recently in China. What insights can you talk about in terms of energy consumption in China and demand from its consumers and how are these trends impacting your business?
The future of the oil industry will increasingly be driven by export flows to China. This is already benefiting us as we see demand coming through in higher trading volumes.
In fact, China already consumes 50 percent of Oman Blend, which is the deliverable grade on the DME Oman contract. As the world’s second largest economy and one of the largest consumers of oil, we are very bullish about volume growth coming out of China in the months and years ahead. The World Bank estimates that if China grows at 7-8 percent, it will account for 30 percent of global economic growth this year. That says a lot about the importance of China to global growth and energy consumption.
A growing number of people are starting to believe that peak oil – the point at which the world reaches its maximum oil production – is further off than originally anticipated. How are new oil extraction techniques such as the US shale gas revolution having an impact on global crude supply? And will this benefit Asia by reducing competition for supply?
U.S. crude and liquids production grew by more than one million barrels a day last year, the largest increase by any country in the world and the largest in U.S. history. This new domestic production driven by shale gas is already leading to a steep reduction in US oil imports. This shift in oil consumption by the US means Asia has become increasingly influential and important as an oil- consuming region. To illustrate, this quarter, non-OECD economies will overtake OECD nations in oil demand for the first time, according to the International Energy Agency. Asia is the big reason for this surge in demand.
What is next for DME?
We plan to continue to grow the Exchange by improving our offering to our members and shareholders. Our goal is to help the Middle East develop its oil-trading ecosystem on a par with other leading benchmarks such as Brent and WTI. We will facilitate this by bringing together the world’s largest oil reserves, the financial liquidity of the Gulf region and the fast-growing consumer nations of India, China and Asia. This will ensure that the Middle East takes its rightful place as a core trading hub for the world’s global oil markets.