The average daily volumes at the Dubai Mercantile Exchange (DME) have risen since December well into January and now stand close to double that of October last when the exchange reported its best volumes ever.
The DME reported an average of 2624 daily Dubai Oman Crude Oil futures contracts in October and had announced that the volumes were the best ever in a month. The volumes of Dubai Oman Crude Oil futures contract stand at more than 4,000 daily contracts for the first 12 days of January, according to figures published by the exchange.
This brings the exchange closer to the estimated 6,000-contracts mark required to attract players such as Saudi Aramco and other major national oil firms.
The volumes had risen to 4,796 contracts on January 7 and to 4,241 contracts on January 12.
The news comes close on the heels of report by Energy Intelligence that the volume of oil stored in crude carriers on high seas has been declining; and, another report from Bank of America Merrill Lynch which pointed out an increase in oil demand in countries such as India, China and Japan.
Analysts point out two related reasons for the steady rise in the number of contracts traded at the Dubai based exchange. The announcement by Saudi Arabia in October (and later by Kuwait Petroleum) the last year to drop the widely used West Texas Intermediate oil contract as the benchmark for pricing its oil and a move over to an index developed by Argus the London based oil pricing company.
Secondly, analysts see an interest among Asian buyers in the DME.
"The DME has definitely gained fresh traction over the past few months. In a sense it's a virtuous circle for the exchange – as liquidity grows more companies are attracted to trade on the exchange, which then further lifts liquidity," said Owain Johnson a Singapore-based official with Argus.
"The decision by Saudi Aramco and Kuwait Petroleum to switch their US benchmarks from WTI to the Argus Sour Crude Index has sent a message to the crude oil market that Middle East producers are prepared to look at alternative benchmarks when there is a clearly superior alternative, so this opens the door for the DME to work on convincing producers in the region that they are the best option for pricing," he said.
Dubai based analysts pointed out that the prevailing high volumes are a result of a momentum that has been building over the months. "The high number of contracts is a result of gradual momentum that has built up at the DME. The Saudi decision had an impact. And there are more Asian buyers preferring the DME ," said Robin Mills, a Dubai-based oil economist.
Besides, several other steps taken by DME over a period of two years has contributed to a gradual increase in volumes since September (it fell slightly in November).
The DME contracts are listed on CME Globex, the world's leading electronic trading platform from the CME Group. In August 2008, the DME announced the release of an indirect equity stake of up to 20 per cent on the Exchange.
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