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28 February 2024

WTI-Brent crude differential energises trade

By Shashank Shekhar

A differential of $4 to $8 between WTI and Brent crude has invigorated trading and speculation activity at the Dubai and Mercantile Exchange (DME) and Dubai Gold and Commodities Exchange (DGCX), analysts and oil economists say.

A total of 6,484 contracts were traded at the DME on December 13. This was 35 per cent up from the previous high of 4,819 reached on November 18. DME recorded a total of 4,031 contracts on January 15.

Brent futures have traded at a premium of almost $4 above Nymex crude futures in the past few days. On February 13, ICE February Brent traded at a record intra-day premium of $8.46 a barrel over Nymex crude for February delivery. Under normal circumstances, Brent, which is considered a lower quality crude trades at a $1.50 discount against WTI.

"Yes of course there has been effect. We have seen a renewed activity of speculators this month," said Sajith Kumar PK, the Vice-President UAE operations with JRG Metals and Commodities.

"In the current market it is very much encouraging. With all the volatility, traders are looking for a stable benchmark. However, so far the Western hemisphere has basically relied on these two benchmarks – WTI and Brent," Robin Mills, a Dubai-based oil economist said.

The DME provides a platform for Oman crude futures. Fuel oil futures, Brent futures and WTI light sweet crude oil futures are traded at the DGCX. DME does not disclose the names of those trading at its platform. DME officials say the rising usage of its platform may have more to do with the steps the exchange has taken over a period of two years during which it has "steadily grown".

Commenting on the November 13 high volumes, Thomas Leaver, CEO of the DME, said : "These record volumes also reflect the confidence in the DME from international industry participants and global trading community. In these times of extreme credit risk, market participants look for the security afforded by Nymex central counterparty clearing of DME contracts. Our migration to the Chicago Mercantile Exchange Group Globex trading platform, due this quarter, will enable an even wider audience to participate in trading the DME Oman Crude Oil Futures Contract."

DME's previous high recorded in November had come right after the announcement of its association with CME.