Dubai fast emerging as Asia's fuel trading hub

Dubai is emerging as one of Asia's key trading hub of refined crude products, analysts said. However, the emirate needs to improve on certain platforms before the market officially awards it the coveted position, traders said. Firstly, Dubai must ensure that traders selling refined products from the region register their sale. Secondly, pricing of fuels (refined products) should be carried out by an entity based in the region. And thirdly, even though storage capacity expansions are taking place in at least two emirates, there is still space for new storage capacity of refined products such as petrol, diesel and jet fuel. "These issues remain the key to establishing Dubai as a trading hub," said Owain Johnson, a senior official with Argus, the world's largest energy analysis and reporting agency. As of now most of the region's oil – crude and refined products – are traded in Singapore, a tiny country with no reserves but with a deeply entrenched systematic fuel trade, he said. The GCC, as one entity, is the largest exporter of crude in the world. With the two-year-old Dubai Oman Futures Contract doing pretty well, Dubai has emerged as a prominent centre of crude sale. Since the region imports most of its refined products, and Dubai is the region's import hub, it is also the Middle East's largest market for refined products such as jet fuel, petrol and diesel. "As of now most of the crude from the region is traded directly by national oil companies (NOCs). Even though there is some presence of traders in Dubai, the NOCs sell most of their oil directly to buyers. And much of the date about those sales is not published," Johnson said. A mechanism to calculate the daily trade of crude and refined products from the region is yet to evolve, Johnson said, while emphasising Dubai needs to move in to fill the gap. "We see some difficulties with pricing mechanisms in the Gulf because the region is becoming an important standalone import/ export centre, yet its pricing arrangements are all dependent on Singapore or Rotterdam pricing. We are keen to encourage the development of standalone Middle East products' pricing. If Middle East pricing becomes a reality, then trade could certainly pick up. We need more information on trade from the region," he added. Johnson, who specialises in refined crude trade, said he sees Dubai emerging on top of a second tier of fuel trade hubs that includes Moscow, Rotterdam, New York and Geneva. "It depends how you define trading hubs. The big three are obviously Houston, Singapore and London. But there are also big concentrations of traders in Moscow, Rotterdam, New York and Geneva. Dubai would be towards the top of this second tier," he said. Open access to a range of port and storage facilities, plus a largely "hands-off" approach from government, have helped Singapore, Houston and the Amsterdam-Rotterdam area to flourish as the main hubs for global oil products trade. While the precedent for trading oil for profit in the Middle East is far from reassuring, there are reasons to be hopeful. Storage capacity Increased storage facility in Dubai would be "very beneficial" in terms of the development of the emirate as a global trading hub, Johnson said. In fact developments are taking place as far as expanding of storage facilities in Dubai is concerned. Emarat, the Dubai-based, government-owned fuel trading company, has recently commenced the construction works of the expansion project at the Fujairah Storage Unit for storing and distributing gas oil, fuel, petrol and jet fuel. The expansion would increase the storage capacity to 250,000 cubic metres. The total project cost is Dh250 million. Besides, the Dubai Multi Commodities Centre (DMCC) is also constructing a new storage facility to store refined products near Jebel Ali. Sources said DMCC, along with two other partners, plans to construct a 500,000 cubic metres storage facility at Technopark near Jebel Ali. The upcoming airport in Dubai and an expected rise in demand for jet fuel is one of the reasons for constructing the facility. The total capacity of fuel storage in Jebel Ali today stands at about three million cubic metres, sources said. Some of the private companies that have storage facilities are also expanding their capacities, analysts said. Storage capacity in Fujairah, already the world's number three ship refuelling hub, is estimated at 2.5-3 million cubic metres, and future expansions could raise it to up to 6.5-7 million cubic metres. Lenient view Most of the region's big producers, including Saudi Arabia, Iran and Kuwait, effectively ban customers from trading their crude. But they take a far more lenient view of refined fuels such as petrol and diesel, for which import demand has risen as the petrodollar revenue boom has fuelled strong consumption growth. Long term, that trend is expected to be reversed: massive refinery expansion projects look set to give the Gulf a significant surplus of refined fuels by 2015. This