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08 December 2023

DME plans Oman options contracts

The DME launched its Oman futures contract in June 2007. (EB FILE)

By Reuters

The Dubai Mercantile Exchange is planning to launch options contracts linked to its Oman oil futures contracts, the DME's chief executive yesterday said.

The DME launched its Oman futures contract in June 2007 in an attempt to establish a new benchmark price for the 12 million barrels per day (bpd) of crude exported from the Middle East to Asia daily.

"We are looking to when we have enough liquidity on Oman to support an options market," DME Chief Executive Thomas Leaver. "We have drawn up the options contracts and are submitting them to regulators."

Leaver was bullish on the DME's potential to reach a volume of trade of over 10,000 lots per day, a target seen as a measure of both commercial success for the Oman contract and enough for options trade to flourish. The DME hit a record volume of 6,484 lots on January 13.

"We have ambitions far beyond 10,000," he said. "The contract is a technical success. Now we are concentrating on making it a commercial success. Once we have done that, we will think about more contracts."

It would take about six months to get regulatory approval for the contracts from the US Commodity Futures Trading Commission, Leaver said.

The Oman contract has survived longer than other attempts to establish a benchmark for sour Middle East crude but volumes remain thin. Small independent producers Oman and Dubai have a stake in the exchange and use it to price their oil, making the Oman contract the first to have the official backing of Middle East oil producers. Still, the DME has yet to attract any of the region's larger oil producers to the Oman contract, which would encourage reluctant Asian refiners who buy from the Middle East to sign up and bolster volumes.

Leaver said he hoped a major producer would begin using the contract before the end of this year.

"As long as volumes grow, which they are, that strengthens our argument and adds to our credibility and legitimacy," Leaver said. "We have been accepted as having staying power. I think producers such as Saudi Arabia like the contract and so do their customers."

The DME switched the Oman contract to the trading platform for the world's largest derivatives exchange earlier this month, in a move it hopes will boost volume.

The contract trades on the US CME Group's Globex trading platform. The CME Group acquired a 25 per cent stake in the DME when it agreed last March to the energy and precious metals mart Nymex.

The first new CME member to receive regulatory approval to trade the Oman contract would be announced soon, Leaver said. DME members that were already also members of the CME can already trade the contract.

The CME has also brought new market makers to help trade in the Oman contract, he said.

"We are benefitting from being on the Globex platform," Leaver said. "They have been helpful in talking us up to their members. And the new market makers would not be there if we did not go to Globex."